Village Farms has an 86 per cent upside, says GMP Securities

Licensed producer Village Farms International (Village Farms Stock Quote, Chart TSX:VFF) has announced its application to list on the US NASDAQ exchange, a move that will likely increase the stock’s exposure to a larger investor base, says analyst Martin Landry of GMP Securities.

Shares of VFF rose sharply on Monday, as the vegetable grower and cannabis producer announced its filing to list on the NASDAQ, the timing of which has yet to be announced.

“As a company with substantive US assets and operations and, with our recently announced intention to aggressively pursue potential opportunities in the now federally legal US hemp and CBD industry, the listing of our common shares on NASDAQ is intended to provide broader exposure to, and greater liquidity for, U.S. investors,” said CEO Michael DeGiglio, in a press release.

The release also confirmed that Village Farms, through its 50 per cent owned joint venture Pure Sunfarms, has completed the conversion of the final quadrant of its 1.1 million sq. ft. greenhouse and is now awaiting a license from Health Canada for the final quadrant (344,000 sq. ft.)

Calling the US listing an upcoming catalyst for VFF, Landry says that the final Health Canada licensing would bring Sunfarms’ production capacity to about 75 tonnes, effectively putting it in the top ten largest cannabis producers in Canada.

“We expect a supply and demand imbalance for recreational cannabis in the next year which favours existing licensed producers such as VFF with up to 50 tonnes of production in 2019,” says Landry in a Monday note to clients.

“With VFF’s shares trading at ~5x CY20 EBITDA, we believe potential expansions in the US and Canada are not reflected in the company’s share price,” he says.

Landry is maintaining his “Buy” recommendation and $9.50 target price, representing a projected 12-month return of 86.3 per cent at the time of publication.