Canadian cannabis company MedReleaf Corp. (TSX:LEAF) just scored a solid win with its agreement to become the largest supplier of medical cannabis to a leading German distribution company, says Russell Stanley, analyst with Echelon Wealth Partners, who on Monday reiterated his “Speculative Buy” rating and one-year target price of $32.50 for LEAF.
The new deal has Markham, Ontario-based MedReleaf agreeing to supply medical cannabis to Cannamedical Pharma GMBH, said to be a leading medical cannabis distributor in Germany, where in March of last year, parliament approved the medical use of cannabis. Reportedly, Cannamedical distributes to over 1,800 pharmacies in Germany (by comparison, Canada’s biggest pharmacy chain, Shoppers Drug, has 1,300 stores across the country).
“Medical cannabis in Germany has been in short supply and Cannamedical is an ideal partner to bring MedReleaf’s premium cannabis products into Germany as one of Europe’s leading cannabis distributors with shared values on patient-centricity, a proven track record, and a growing network of 1,800 pharmacies,” said Neil Closner, President and CEO of MedReleaf, in a press release.
While still in its early stages, Stanley says that the German market could eventually be bigger than Canada’s, as it serves a population of 82 million versus Canada’s 37 million.
“Today’s announcement demonstrates LEAF’s ability to develop an international platform to build on its strength in Canada,” says the analyst in a special situations update to clients on Monday.
“With little-to-no legal domestic production capability, the German market is highly reliant on imports, with excess demand resulting in wholesale pricing levels that are comparable to the direct-to-consumer pricing levels we see in Canada,” says Stanley.
“MedReleaf trades at just 10.0x our estimate of C2019E EBITDA, 39% below the broad peer group average of 16.4x and, remarkably, 69% below the $1B+ market capitalization peers at 32.0x,” says the analyst.
Stanley thinks LEAF with do revenues of $43.9 million and $137.4 million in 2018 and 2019, respectively, with an adjusted EBITDA of $1.9 million in 2018 and $45.1 million in 2019.
The analyst’s “Speculative Buy” rating comes with a $32.50 target, representing a 12-month projected return of 68 per cent at the time of publication.