Buy Aurora Cannabis for a double, PI Financial says

Jason Zandberg of PI Financial says licensed producer Aurora Cannabis (TXS:ACB) will gain brand exposure through its exclusive licensing agreement with Alberta-based liquor retailer Alcanna (TSX:CLIQ), a deal which Zandberg says will have a positive impact on ACB.

On Wednesday, the analyst maintained his “Buy” rating and $13.00 target price for Aurora.

This morning, Aurora announced the license agreement which gives Alcanna exclusive rights to open retail cannabis stores under the Aurora brand name across Canada. In February of this year, Aurora bought a 25 per cent stake in Alcanna, formerly named Liquor Stores N.A., for $138 million.

In a press release today, Aurora CEO Terry Booth said that his company is collaborating with Alcanna on store design and layout to best attract the adult rec cannabis market. “This agreement between Aurora and Alcanna, combining physical presence, retail experience, capacity and expertise with our brand strength, product know-how and deep data, creates a significant competitive advantage that will allow for the rapid development of a robust retail network in Alberta, and any other jurisdiction that permits private retail of cannabis for adult consumer use,” says Booth.

Zandberg says that Alcanna — which currently operates 229 liquor stores across Canada and reportedly plans to open 37 retail cannabis outlets in Alberta by the start of rec cannabis in October — has a proven track record of responsible retailing in controlled substances.

“The unveiling of the retail strategy and store concept through Alcanna will further increase Aurora’s brand exposure across Canada and enable Aurora to capture consumer attention, creating brand equity and long-term loyalty,” says Zandberg in a corporate update to clients on Wednesday.

“We are forecasting sales of $437 million and $954.9 million in FY19 and FY20, respectively,” he says. “Our EBITDA estimates are $75.8 million and $296.3 million for those same periods.”

The analyst rates ACB as a Speculative risk, noting that a broad correction in equity valuations in the cannabis sector “will negatively impact our target and recommendation.”

His $13.00 target price represents a 109 per cent projected return at the time of publication.