PI Financial analyst Devin Schilling says Canopy Rivers (Canopy Rivers Stock Quote, Chart TSXV:RIV) has a real winner in PharmHouse, a joint venture with greenhouse produce companies.
In a research update to clients today, the analyst focused on PharmHouse, which he notes is the largest contributor to his NAV estimate of all the companies in Canopy Rivers’ ecosystem.
“PharmHouse is a joint venture between Canopy Rivers and the principles and operators of leading North American greenhouse produce companies,” Schilling explains. “The JV partner’s family-owned and operated affiliated entities (Sunset Produce) have been in the greenhouse produce business for over 60 years and have annual sales of over $1.5B. This represents one of the largest greenhouse operators in North America.
The analyst says the initial PharmHouse cultivation facility in Leamington Ontario, which was built in 2017, is expected to produce more than 130,000 kilograms of cannabis per annum. He notes that the JV’s scope could soon expand exponentially.
“As a comparison, we highlight Village Farms International who holds a 50% stake in a joint venture called Pure Sunfarms,” he says. “This JV operates a 1.1M sq. ft. greenhouse located in Delta, BC that is now fully licensed for cultivation. Similar to PharmHouse, Village Farms has optionality to further expand its cannabis operations through its existing greenhouse network that includes additional locations in Canada, the U.S., and growing partners in Mexico. Unlike Village Farms who now trades at an ~$900M market cap, we currently value PharmHouse at $560M which given Canopy Rivers 49% ownership stake contributes $274M to our NAV Estimate. Bottom-line, we believe PharmHouse has considerable additional upside as the asset further progresses through licensing milestones and secures new off-take agreements.”
Schilling today maintained his “Buy” rating and one-year price target of $9.00 on Canopy Rivers, implying a return of 125.6 per cent at the time of publication.
The analyst thinks Canopy Rivers will post EBITDA of negative $3.87-million in fiscal 2019. He expects that figure will improve to EBITDA of positive $69-million the following year.