Auxly Cannabis has huge upside, Mackie Research says

Auxly Cannabis Group (Auxly Cannabis Stock Quote, Chart: TSXV:XLY) continues to execute its strategy within the cannabis space, says analyst Greg McLeish of Mackie Research, who Tuesday reiterated his “Buy” recommendation and $3.00 target for XLY.

On Monday, Toronto-based Auxly, which provides financial and regulatory support for early and late stage licensed producers of both medical and recreational marijuana, released its financials for the three and nine months ended September 30, 2018. The company reported a net loss of $32.6 million or $0.07 per share over the nine month period, which compares to a loss of $8.9 million or $0.06 per share for the same period the prior year.

McLeish says the drop in net income was primarily due to an increase in general and operating expenses along with non-cash and nonrecurring expenses and losses.

“The company maintained a strong balance sheet and liquidity position with $236.9 million in cash and cash equivalents at the end of Q3/18,” said the analyst in a client update. “The majority of this cash is earmarked for funding Auxly’s streaming partners, wholly owned subsidiaries, downstream distribution efforts and general and administration costs. Cash used in investing activities totalled $75.3 million through Q3/18 and it includes strategic investments made in subsidiaries, streaming partners and strategic partners.”

Last month, Auxly announced its cultivation and retail expansion into Newfoundland & Labrador through a strategic partnership with ACMPR applicant Atlantic Cultivation, a deal which will see Auxly invest $2.5 million into Atlantic in exchange for a 50 per cent equity stake and a long-term right to purchase up to 30 per cent of the company’s cannabis.

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“XLY is well positioned for growth in medical and recreational markets,” says McLeish. “XLY’s model allows it to access cannabis production from growing collection of diverse partners, enhancing its position to participate in anticipated provincial distribution channels. Through existing agreements, the company has locked up more than 150,000 kilograms of funded production, positioning it as one of the leading suppliers for both medical and recreational cannabis.”

McLeish has updated his forecast for XLY, now calling for revenue and EBITDA in 2018 of $4.3 million and negative $24.8 million, respectively, and revenue and EBITDA in 2019 of $165.3 million and $35.2 million, respectively.

His $3.00 target price represents a projected return of 219 per cent at the time of publication.