Canopy Rivers has a 60 per cent upside, says GMP Securities

The coming months could be rich with catalysts for cannabis venture capital company Canopy Rivers (Canopy Rivers Stock Quote, Chart TSXV:RIV), according to GMP Securities analyst Martin Landry, who on Thursday maintained his “Buy” rating but increased his target price from $7.25 to $7.50.

On Wednesday, Canopy Rivers released its financials for its third quarter ended December 31, 2018, posting an Adj. EBITDA loss of $1.4 million for the quarter and cash flow from operations of negative $1.6 million, which was below Landry’s expected $1.1 million.

Nonetheless, the analyst said the quarterly results were largely immaterial, as the company’s valuation stems more from its net asset value. On that note, Landry increased his NAV calculation by $0.19 per share to $3.43 per share, due to the company’s recent equity financing and its capital deployment since the last quarter.

“The largest contributor to Rivers’ NAV is the 49 per cent ownership in PharmHouse valued at $1.25 per share,” writes Landry in a client update. “We value RIV’s investment in TerrAscend Corp. (TER-CSE; not rated) at $0.55/share and RIV’s 26 per cent ownership stake in Vert Mirabel JV at $0.37/share. Rivers’ fully diluted cash balance amounts to $0.79 per share, while its other investments account for $0.47 per share.”

Landry says that a near-term catalyst for the company will be PharmHouse’s cannabis production license for its 1.3 million sq. ft. greenhouse in Leamington, Ontario, which will bring this asset into revenue-generating mode. “We believe this inflection point will be welcomed by investors and could lead to valuation multiple expansion,” he states.

Landry’s target price comes from applying a 2.25x multiple to his $3.43 NAV.

“In our view, this premium to NAV is warranted given Rivers’ ~$120m of deployable capital, its affiliation with Canopy Growth (increasing its pipeline of potential deals and improving access to capital) and management’s solid track record,” he states.

Landry’s new $7.50 target represented a projected return of 59.9 per cent at the time of publication.