Cannabis stock iAnthus Capital is a double, says Beacon Securities

Beacon Securities analyst Russell Stanley says US cannabis company iAnthus Capital Holdings (iAnthus Capital Holdings Stock Quote, Chart CSE:IAN) is now trading at 69 per cent discount to its closest peers, making for a buying opportunity.

In a Monday update to clients, Stanley reiterated his “Buy” rating for IAN and maintained his target price of C$16.00.

Multi-state cannabis operator iAnthus announced on Monday its plans to redeem about $32 million from holders of outstanding convertible debentures which were inherited by iAnthus as part of the acquisition of MPX Bioceutical Corp, a deal which was closed on February 5 of this year. (All figures in US dollars unless noted otherwise.)

“The redemption or resulting conversion of these debentures will enable us to significantly reduce our interest expense and potential further future dilution for our shareholders,” said Hadley Ford, CEO, in a press release. “The removal of this expensive debenture is a key part of our commitment to optimizing our cost of capital.”

Stanley says the holders of the debentures, originally issued in May 2018, are heavily in-the-money and are likely to convert rather than hold to redemption.

The analyst maintains that iAnthus is cheap compared to its peers.

“IAN now trades at approximately 11x our 2020E EBITDA estimate. This represents a 49 per cent discount to the 21x average of the broad peer group and a 69 per cent discount to the 34x average amongst companies with a C$1 billion plus market capitalization,” Stanley says.

The analyst expects IAN to generate fiscal 2019 Adjusted EBITDA of $25 million on revenue of $188 million and fiscal 2020 Adjusted EBITDA of $121 million on a top line of $341 million. Stanley sees potential catalysts for IAN including its Q4 results coming in April, the completion and opening of dispensaries across its operations and further M&A activity. His C$16.00 target represents a projected 12-month return of 100 per cent at the time of publication.