Expansion plans have Beacon Securities analyst Vahan Ajamian feeling bullish about The Hydropothecary Corp. (TSXV:THCX).
This morning, Hydropothecary announced it had acquired 78 acres of land next to its current Gatineau facility. The company said it intends to construct a one-million square foot facility that will be capable of producing 108,000 kg of dried cannabis per year.
“Hydropothecary is boldly stepping forward to take the lead in the Canadian cannabis industry,” said CEO Sebastien St-Louis. “With our expansion, we are moving into industrial agri-nomics, robotic technology, fully automated systems and the cannabis plant as a THC bioreactor. Once legalization of the adult-use recreational market becomes a reality, Hydropothecary will be ready.
Ajamian calls this “a very significant development”. He says it not a big leap of logic to imagine that Hydropoathecary has some visibility on the future.
“We do not believe the company would embark on such a massive expansion without a sense as to where it would be selling the product and at approximately what price,” the analyst says. “For context, extrapolating the three MOUs from New Brunswick, we calculate the size of the Quebec market at 144,000 kg with a retail value of $1.5B.”
In a research update to clients today, Ajamian maintained his “Buy” rating on The Hydropothecary Corp., but raised his one-year price target from $4.00 to $8.50, implying a return of 107 per cent at the time of publication.
Ajamian thinks Hydropothecary will generate EBITDA of negative $4.5-million on revenue of $11.3-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $6.1-million on a topline of $35.7-million the following year.