Beacon Securities analyst Russell Stanley is bullish about US cannabis company Acreage Holdings (Acreage Holdings Stock Quote, Chart CSE:ACRG.U), which he thinks could become the Proctor & Gamble of the cannabis space.
Makers and distributors of cannabis-based edibles and beverages, Acreage announced on Thursday an agreement to acquire Form Factory, a multi-state manufacturer and distributor of cannabis products formed from co-packer Gesundheit Foods and IP portfolio, Made by Science, in an all-stock transaction worth $160 million. (All figures in US dollars.) Form Factory currently employs 51 people across three states, with Acreage saying that the entity should start contributing to revenue in 2019 and become EBITDA accretive in 2020.
Stanley says that while the purchase doesn’t move his estimates or target price, he views it positively from a strategic perspective.
“Acreage expects this transaction to make it the first national consumer packaged goods (CPG) company in the United States, positioning it well to partner with traditional CPG heavyweights such as Nestle, Mars or Procter & Gamble,” says Stanley in an update to clients on Thursday. “During this morning’s call, management stressed that the company still intends to develop its own brand portfolio, and this transaction is designed to accelerate Acreage’s own product development, while adding a new line of business that leverages the company’s extensive footprint.”
The analyst sees Acreage generating revenue in 2018, 2019 and 2020 of $69 million, $272 million and $533 million, respectively, and Adj. EBITDA in 2018, 2019 and 2020 of negative $13 million, $60 million and $158 million, respectively.
Stanley maintains his “Buy” rating and $40.00 target price, which represents a potential return of 150 per cent at the time of publication.