With the recreational marijuana market up and running and Canadian cannabis companies suffering a big time pullback, it’s time to be looking south of the border for bargains, says Beacon Securities, who have selected a handful of favourite picks, all of which have an operational focus in the US and as a group currently trade at a 59 per cent discount to their Canadian peers.
First up is Acreage Holdings (Acreage Holdings Stock Quote, Chart CSE:ACRG.U), with a “Buy” rating and $40.00 target price, representing a projected return of 88 per cent. (All returns are as of publication date.) Beacon analysts Russell Stanley and Doug Cooper contend that Acreage will exit 2018 with interests in 18 states incorporating an aggregate population of 169 million people, the broadest footprint among publicly-traded multi-state operators, and boasts a board of directors that’s “unparalleled” in the cannabis space (including former Canadian PM Brian Mulroney!) Catalysts include the closing of the previously announced Nature’s Way acquisition in January and the opening of dispensary operations in Massachusetts.
Curaleaf Holdings (Curaleaf Holdings Stock Quote, Chart CSE:CURA) also gets the nod, with interests in 12 states and possessing one of the strongest balance sheets in the space — they just completed a C$520-million equity financing, for example. Curaleaf’s potential catalysts include progress on adult-use legalization in New Jersey and build-out updates in Florida and Massachusetts. (Beacon currently has no rating for Curaleaf.)
Green Thumb Industries (Green Thumb Industries Stock Quote, Chart CSE:GTII) is also a Beacon favourite, calling for a “Buy” with a C$40 target, representing a projected 12-month return of 174 per cent. The analysts make note of Green Thumb’s strong top line performance over its third quarter (a 344 per cent year-over-year jump), the acquisition of a license in Florida and a $290-million purchase in Nevada that will add more than $26 million to its EBITDA. Catalysts include the acquisition of a New York license, due during the first half of 2019, and additional M&A activity.
Beacon also likes iAnthus Capital Holdings (iAnthus Capital Stock Quote, Chart CSE:IAN), to which it ascribes a “Buy” rating and a recently increased C$16.00 target, representing a 161 per cent projected return. IAN also produced a strong Q3, say the analysts, who are looking forward to news on the opening of the company’s first dispensaries in Florida and New York sometime this month, along with the closing of the MPX Bioceutical acquisition next month.
Stanley and Cooper state a special preference for companies operating in California, not just the largest state by population but one which will remain the largest cannabis market in the world for the foreseeable future. For this reason, they like Origin House (Origin House Stock Quote, Chart CSE:OH), giving it a “Buy” and a C$13.00 target and expecting that as the market matures in California, OH will emerge as one of a small handful of winners. The analysts like the company’s strong balance sheet as well, with about $70 million in cash, representing about $1.15 per share and 16 per cent of market cap.
Next up is Planet 13 Holdings (Planet 13 Holdings Stock Quote, Chart CSE:PLTH) which gets a “Buy” recommendation and C$7.25 target price, representing a 12-month return of 326 per cent. The vertically-integrated cannabis company is based in Nevada, and Beacon points out that after being open for just one month, its 112,000 sq. ft. SuperStore in Las Vegas is averaging 1,400 daily visits with an average ticket size exceeding the company’s $75 per visit target. Catalysts include the securing of a second dispensary license and the state’s tabling of on-site consumption regulations.
Last but not least is Cannex (Cannex Stock Quote, Chart CSE:CNNX), which Stanley and Cooper rate a “Buy” with a C$1.80 target, representing a 114 per cent return. Beacon likes the company recently announced pending transaction with 4Front Ventures to become the newest multi-state operator with stakes in Washington, Massachusetts, Illinois, Pennsylvania and Maryland. Stanley and Cooper call it “a merger between a company with a growing footprint (4Front) and one with operational expertise (Cannex, whose underlying business is generating $50 million in sales at an ~30% EBITDA margin).”