Canopy Rivers offers “best in class” exposure to the global cannabis sector: PI

Cannabis investment platform Canopy Rivers (Canopy Rivers Stock Quote, Chart TSXV:RIV) has announced that its subsidiary Spot Therapeutics has received a cannabis cultivation license from Health Canada, an event which analyst Devin Schilling of PI Financial takes as a positive for RIV.

On Monday, the analyst reiterated his “Buy” rating and $9.00 target for Canopy Rivers.

Canopy Rivers announced the news on Friday concerning the Fredericton, NB-based Spot Therapeutics, whose production facility and property were acquired by Canopy Rivers in 2017 and has been leased to Canopy Growth Corp. for a 20 year term at $0.6 million per year.

The facility has about 40,000 sq. ft. of production space and is anticipated to produce over 4,000 kg of dried cannabis per year. Canopy Rivers management predicts a 25-year cash flow of approximately $2.85 million per year, starting in September 2019.

“The long-term income stream from Spot, combined with our existing royalty portfolio, will further stabilize Canopy Rivers’ operating cash flow profile and provide us with additional financial resources to deploy as we continue to make investments in industry verticals we believe offer long-term strategic value for our portfolio partners and shareholders,” said Eddie Lucarelli, CFO of Canopy Rivers, in a press release.

Schilling evaluates the news as having a positive impact on RIV, with the analyst having already forecasted the royalties as commencing in September.

“This licensing milestone represents continued progress from Canopy River’s portfolio holdings. The new long-term income stream from Spot provides additional financial resources to deploy into new investment opportunities or provide follow-on capital to the existing portfolio. With limited operating expenditures this royalty is largely expected to flow to the bottom line,” Schilling said in an update to clients.

“We believe Canopy Rivers represents best-in-class exposure to the emerging global cannabis sector,” says Schilling.

His Total NAV estimate for RIV remains relatively unchanged at $902 million, while his $9.00 target represents a P/NAV of 2.2x his NAVPS estimate of $4.15 and amounts to a projected return of 107.9 per cent at the time of publication.