Vivo Cannabis has a huge upside, says PI Financial

All cashed up and maintaining a strong inventory position, licensed producer Vivo Cannabis (Vivo Cannabis Stock Quote, Chart: TSXV:VIVO) has plenty of upside, says analyst Jason Zandberg of PI Financial.

Vivo Cannabis reported its financial results for the three- and nine-month periods ended September 30, with the company emphasizing the closing of key acquisition Canna Farms at the end of August.

“Not only has this acquisition provided a significant revenue impact, it has tripled our production capacity, expanded our product range and substantially increased our medical patient base,” said Barry Fishman, CEO of VIVO, in a press release.

For its third quarter, Vivo reported revenue of $2.3 million, up 117 percent from last quarter, and EBITDA of negative $4.7 million and EPS of negative $0.04 per share.

That top line was lower than Zandberg’s $3.1 million estimate, with the analyst pointing out that the bulk of those Q3 sales were in medical cannabis as opposed to sales from the newly-opened rec market.

“Revenue from this quarter does not reflect recreational sales as rec shipments commenced after the quarter ended,” said Zandberg in a client update on Friday. “We do expect Q4 sales to reflect initial recreational sales to BC, Alberta, Saskatchewan, Manitoba, Ontario and the Yukon. We expect sales to surpass $10 million given VIVO’s strong inventory position at the end of Q3.”

Zandberg points to VIVO’s continued delivery on the medical cannabis front, where the company grew its patients from 2,000 to 18,000, as well as to the company’s strong cash position of $100.4 million at the end of Q3, enough to fund expansion operations and future growth, he says.

“We have made small modifications to our sales model. Our revenue estimates are $14.0 million, $32.8 million and $81.0 million for FY18, FY19, and FY20 (previously $10.2 million, $32.5 million and $80.0 million), respectively. Our EBITDA forecast is ($13.4 million), $2.4 million and $24.8 million (previously ($12.8 million), $2.3 million and $25.9 million) for FY18, FY 19 and FY20, respectively,” he says.

Zandberg maintains his “Buy” recommendation with a “Speculative” risk rating and reiterated target of $2.50, representing a projected 12-month return of 272 per cent at the time of publication.