For cannabis producer Emblem Corp. (TSXV:EMC), quarterly misses aren’t all that significant, says analyst Neil Maruoka, who in a research update on Sunday maintained his “Speculative Buy” rating and $2.50 target price for Emblem.
Last Friday, Paris, Ontario-based pharmaceutical cannabis producer Emblem announced its fourth quarter and full-year ended December 31, 2017 results, with Q4 revenue at $0.6 million and an EBITDA loss of $1.9 million, both of which were below Maruoka’s estimates of $1.0 million and negative $1.1 million, respectively.
Yet, the analyst believes that even with the slower-than-expected production ramp, the company grew its registered patient base in Q4 by 27 per cent to 3,300.
“While Emblem’s production capacity is only expected to be a modest 2,000 kg this year, cultivation is expected to increase dramatically in Q2 2019 when production begins at the company’s 15,000 kg capacity greenhouse,” says the analyst.
“We continue to believe that Emblem’s pharmaceutical strategy is a key differentiator,” he writes. “Improved convenience and tighter dosing of cannabinoids is likely to reduce the amount of drug required and increase patient compliance and, as a result, we believe that Emblem could achieve substantially higher pricing.”
Following the financial report, the analyst has adjusted his forecast numbers for EMC, expecting revenue and Adj. EBITDA in 2018 of $18 million (down from $19 million) and $3.7 million (down from $5.6 million), respectively. In 2019, the analyst expects revenue and Adj. EBITDA of $65 million (down from $68 million) and $20.2 million (down from $23.4 million), respectively.
“We value the medical cannabis market based on a DCF model, using a 20 per cent WACC and 2.0 per cent terminal growth; the higher-risk rec opportunity is valued using a probability-weighted NPV, using a 19 per cent WACC,” says the analyst.
Maruoka’s $2.50 target represents a 65.5 per cent return on investment as of publication date.