The most recent cannabis IPO is also one of the most promising, at least if you use PI Financial analyst Jason Zandberg’s bullish price target as your guide.
Yesterday, Zandberg initiated coverage of ABCann Global (TSXV:ABCN) with a “Buy” rating and a one-year price target of $2.25, implying a return of 181 per cent at the time of publication.
On May 3, ABCann completed a private placement that raised it $10.7-million through the sale of $13.4-million units at $0.80. The company began trading this morning, with more than 15-million shares trading hands before 11am PST.
“ABcann’s IPO is a significant milestone for the Company as we look to aggressively expand our domestic production facilities and international opportunities,” said CEO Aaron Keay yesterday. “The capital raised concurrently with the closing of this transaction will allow us to scale our already proven high quality, consistent and proprietary growing techniques, enabling us to take advantage of the tremendous opportunity in the medical cannabis market. In so doing, ABcann will become a premier choice for patients who want a consistent, standardized product that they can rely on.”
The analyst says there are a number of reasons to believe ABCann can deliver on his target.
“ABcann was one of the first companies to approach Health Canada about developing a commercial medical cannabis operation,” Zandberg notes. “The Company received a cultivation license in March 2014, six months after the first license was awarded. ABcann has had the benefit of understanding the growing procedure more than most LPs and partnered with the University of Guelph to study the process.”
Zandberg says he believes ABCann has optimized growing procedures that can produce yield in excess of 250 grams per square foot per year. He says the company’s systems are also designed to produce a consistent product and thinks its flagship Kimmett property has “significant” capacity upside. The analyst also believes ABCann has a strong management team and advisory board, including Dr. Raphael Mechoulam, who is sometimes referred to as the “father of cannabis”.
Zandberg thinks ABCann will generate EBITDA of negative $5.29-million on revenue of $4.13-million in fiscal 2017. He expects these numbers will improve to EBITDA of positive $8.35-million on a topline of $30.27-million the following year.
Disclosure: ABCann is an annual sponsor of Cantech Letter and Cantech Letter Editor Nick Waddell owns shares of the company.