Buy Canopy Rivers for a double, says GMP Securities

Recently listed Canopy Rivers (Canopy Rivers Stock Quote, Chart: TSXV:RIV), the venture capital arm of licensed cannabis producer Canopy Growth Corp. , is set up nicely for international expansion through its joint venture with North American greenhouse produce business PharmHouse, says GMP Securities analyst Martin Landry, who on Thursday reiterated his “Buy” rating and C$8.00 target price for RIV.

Canopy Rivers announced on Thursday amendments to its non-compete agreement with PharmHouse (of which Canopy Rivers owns 50 per cent) while also stating that it had entered into a funding agreement with PharmHouse, one which will see Canopy Rivers provide up to $40 million of secured debt financing with a three-year term to help boost PharmHouse’s development, which includes a 1.3 million sq. ft. greenhouse in Leamington, Ontario.

“When we initially created the PharmHouse joint venture, we established a partnership with thought leaders and operators from one of the world’s leading commercial agriculture and produce companies,” says Bruce Linton, Chairman and Acting Chief Executive Officer of Canopy Rivers, in a press release. “With this incremental funding commitment and amendment to our non-competition agreement, we have fortified what is now a truly global partnership with our joint venture partner; a team that already has experience, infrastructure, and distribution network relationships in many of the world’s most appealing prospective cannabis markets.”

Landry says the non-compete agreement suggests that Canopy Rivers and PharmHouse will partner to operate in the US cannabis market, once it’s federally lawful to do so. PharmHouse is reportedly now assessing cannabis opportunities in the US, including existing greenhouse conversions of which Canopy Rivers has back-in rights to partial purchase.

“With limited investments outside of Canada, investors may have perceived Canopy Rivers as a Canadian centric company,” says Landry in an equity research update. “Our view is that Rivers is well positioned to expand internationally given the global reach of its JV partner. Along with the US, we view the Mexican market as a developing cannabis market which Rivers could enter.”

“With a current valuation multiple of 1.15x our NAV of C$3.36, Canopy Rivers’ shares provide an appealing entry point for investors, in our view,” says Landry.

The analyst’s C$8.00 target represents a projected return of 105.7 per cent at the time of publication.