On the heels of announcing its agreement with licensed cannabis producer Tilray, Vancouver-based EnWave Corporation (TSXV:ENW) is keeping its “Buy” rating from Industrial Alliance Securities analyst Neil Linsdell.
Last week, EnWave announced an exclusive partnership with medical cannabis LP Tilray to use its Radiant Energy Vacuum (REV) dehydrating technology in conjunction with Tilray’s marijuana production. The move marks EnWave’s first foray into the cannabis market, a potentially lucrative venture for the company, says Linsdell.
In the February 1 update to clients, Linsdell maintained his “Buy” rating and one-year price target of $1.50, implying a 32.7 per cent return at the time of publication.
“Given the significant ramp-up in sales expected over the next few years, we use our F2020 (September year-end) EBITDA forecast of $11.7M, and apply a 15× EV/EBITDA multiple, before discounting back 25%, to obtain a F2019 target of $1.50,” says the analyst. “We use a DCF analysis with a 16% discount rate and 10× terminal EBITDA multiple to also derive a $1.50 target price.”
EnWave says its REV technology can drastically shorten the time frame for drying and decontaminating cannabis from four to six days down to one hour. That, plus eliminating the need to ship the cannabis to a decontamination facility (by having a REV dryer on site) could make EnWave’s technology a sought after commodity for cannabis growers across the entire industry, says Linsdell.
“With research into new growing and processing techniques increasing, an increasing list of countries are turning to Canada as a safe and legal source for medical grade cannabis,” says the analyst. “There are 40 LPs in Canada, and we believe that EnWave could become an industry standard for drying.”
Tilray of Nanaimo, BC, currently produces 20 metric tonnes of cannabis a year but is hoping to ramp up to 74 metric in 2018. Recently, the company announced a deal with Shoppers Drug Mart to supply branded medical cannabis products to the pharmacy chain, making it the third licensed producer that Shoppers has so far lined up (Health Canada has yet to approve Shoppers’ application to be a marijuana dispensary).
Controlled by Privateer Holdings Inc., a private equity fund based in Seattle, Tilray supplies medical cannabis to patients in eight countries around the world.
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