Hydropothecary is still undervalued, Echelon Wealth says

The Hydropothecary Corp. (The Hydropothecary Corp. Stock Quote, Chart, News: TSXV:THCX) has plenty of upside to offer investors, Echelon Wealth Partners analyst Russell Stanley says.

This morning, THCX announce it secured a license for its greenhouse expansion, bringing total production capacity to $1.3-million square feet.

“Receiving licensing for the first two zones demonstrates our team’s outstanding execution,” CEO Sebastien St-Louis said. “This planned expansion allows us to continue to ramp up production in preparation for the adult-use recreational market, as Quebec’s preferred supplier, while continuing to serve the growing medical market.”

Stanley notes that Hydropothecary isn’t simply expanding without a plan to sell, in fact he says the company has more visibility in that area than most.

“Relative to Hydropothecary’s announced capacity plans, we believe THCX has pre-sold more of its stated production than any of the major producers,” the analyst says. “The Year 1 commitment to the SQC amounts to almost 20% of stated capacity of 108,000kg, and supply commitments are expected to rise significantly thereafter. We also expect strategic investment and M&A activity in this space to continue, and THCX’s well advanced, fully-funded capacity expansion plans, pole position in Québec and high level of sales visibility should make it an increasingly attractive candidate.”

In a research update to clients today, Stanley maintained his “Speculative Buy” rating and one-year price target of $6.75 on The Hydropothecary Corp. implying a return of 36 per cent at the time of publication.

Stanley thinks the company will generate Adjusted EBITDA of negative $12.0-million on revenue of $10.3-million in fiscal 2018. He expects those numbers will improve to EBITDA of positive $15.1-million on a topline of $97.1-million the following year.

“Further potential catalysts include supply contract developments, expansion progress updates, product development news, approval for a TSX graduation, and improved financial results,” the analyst adds.