While there is no shortage of “we will grow weed and sell it” claims in North America’s burgeoning rec cannabis space, newly listed Sunniva Inc. (CSE:SNN) has the management experience to get the job done and an agreement in hand to supply industry leader Canopy Growth with cannabis, says Vahan Ajamian, analyst with Beacon Securities, who on Monday launched coverage of Sunniva with a “Speculative Buy” rating and 12-month price target of $16.50.
Along with owning and operating eight medical cannabis clinics in Canada and a private label vaporizer and accessories business, Vancouver-based Sunniva is in the midst of constructing cannabis facilities in both BC’s Okanagan and Cathedral City, California.
Last week, the company closed on a $27.8 million bought deal with lead underwriters Beacon Securities and Canaccord Genuity. Sunniva also announced in February the signing of a definitive supply agreement with Canopy Growth who will purchase up to 45,000 kg of dried cannabis annually from the company.
“This Agreement represents a significant milestone for Sunniva,” said Leith Pedersen, President, Sunniva in a press release. “Providing the supply of premium cannabis products under this Agreement allows Sunniva to accelerate the execution of our business plan and distribution strategy.”
Ajamian says that Sunniva offers investors rare exposure to the two largest legal cannabis markets in the world in California and Canada, and the analyst also likes the company’s credentials, which include co-founder, chairman and CEO Dr. Anthony Holler, who with his previous company ID Biomedical built the world’s largest flu vaccine manufacturing facility and then sold it to GlaxoSmithKline for $1.7 billion in 2005.
“Sunniva has been trading for less than three months – during a period largely marked by a pullback in the sector (average stock is down 33 per cent),” the analyst says. “Until today Sunniva had no analyst coverage and, fresh off its $28-million oversubscribed financing, we believe investors will quickly and increasingly take note of this name. We recommend investors acquire shares aggressively at current levels.”
The analyst thinks SNN will deliver revenue and EBITDA in FY18 of $27.3 million and negative $21.6 million, respectively, and revenue and EBITDA in FY19 of $231.5 million and $31.4 million, respectively. He sees the company producing 2020 revenue and EBITDA of $396.9 million and $143.7 million, respectively.
Ajamian’s $16.50 target price represents an 83 per cent return on investment as of publication date.