Some good news for ICC Labs (TSXV:ICC) has GMP Securities analyst Martin Landry raising his price target on the stock.
On Thursday, ICC Labs announced it had been granted medical marijuana licenses in Colombia
“Obtaining Colombian licences further establishes ICC Labs as the leading cannabis producer in Latin America and solidifies our international presence in low-cost jurisdictions,” said CEO Alejandro Antalich. “The Colombian approval process was rigorous and requires, among other things, the creation of social development projects at our cultivation locations. We believe that our experience in Uruguay, where we have recently planted more than 430 acres of non-psychoactive cannabis to be used for cannabidiol (CBD) oil production, will give us a competitive advantage over other Colombian licence holders.”
Landry says Colombia diersifies the company’s production platform and could double its capacity with minimal capital expenditure required. The analyst today broke down his bullish take on the company.
“Our positive outlook on ICC is based on the following,” he says.
1. Exposure to rapidly growing CBD markets globally. We estimate that the global CBD extract market could reach $1b within five years, up from less than $100m currently, excluding Canada and the US. We expect this strong growth to mostly stem from emerging medical marijuana programs in Europe and Latin America. Over the last year, countries such as Germany, Italy, Poland, Argentina, Brazil and Mexico have substantially eased access to medical marijuana. CBD-focused products already hold a commanding share of the medical markets in Canada and the US and thus are expected to have a similar representation globally.
2. Strategic locations provide cost advantage. ICC derives a significant competitive advantage from its locations in Uruguay and Colombia, one of few countries in the world where regulations permit the cultivation of high CBD concentration hemp on a commercial scale. This enables ICC to access hemp strains with CBD concentrations in excess of 10% while most other countries are capped at 5%. This yield advantage combined with South America’s favourable climate results in a significant production cost advantage for ICC.
3. Appealing earnings power. According to our analysis, ICC could have significant earnings power. Assuming that the company plants the full 817 acres it has access to, we estimate that under a bullish case scenario, ICC could generate in excess of $450m in revenues and ~$150m in EBITDA. Assuming a multiple of 6-8x peak EBITDA, this would represent a potential valuation of ~$7.00 per share.
In a research update to clients today, Landry maintained his “Speculative Buy” rating, but raised his one-year price target on ICC Labs from $2.50 to $3.25, implying a return of 79.6 per cent at the time of publication.
Landry thinks ICC will generate EBITDA of negative $2.6-million on revenue of $300,000 in fiscal 2017. He expects those numbers will improve to EBITDA of positive $100,000 on a topline of $15.8-million the following year.