Delta 9 Cannabis has a 152 per cent upside, Mackie Research says

After fourth quarter earnings delivered by Winnipeg-based Delta 9 Cannabis (Delta 9 Cannabis Stock Quote, Chart TSXV:NINE), Mackie Research analyst Greg McLeish is staying bullish, maintaining both his “Buy” rating and $4.00 target in an update to clients on Wednesday.

Vertically-integrated Delta 9, which operates an 85,000 sq ft production facility in Winnipeg along with three retail stores in Manitoba (with plans for a fourth by July of this year), announced its Q4 and 2018 year end financials on Monday, coming in with revenues of $5.3 million for the quarter and an EBITDA loss of $2.8 million.

CEO John Arbuthnot called 2018 a transformation year for Delta 9.

“Our strategy of being one of Canada’s only vertically integrated cannabis companies with licences for production, processing, distribution and retail operations is paying off and now producing significant financial results,” he said. “The legalization of the adult consumer recreational market in October last year is only the beginning of many new and exciting opportunities for the Company.”

McLeish notes that Delta 9 is currently working on a Phase 2 expansion of its Winnipeg facility and will have its license to sell cannabis oils likely within 60 days. He says that the company’s recently-signed sales agreements (including Manitoba Liquor and Lotteries Corp, Saskatchewan Liquor and Gaming, Auxly Cannabis and Canopy Growth) help to underpin his revenue forecasts through 2020.

On the Q4, McLeish says, “Revenue for the quarter was $5.3 million which was largely in line with our estimate. EBITDA loss for the quarter was $2.8 million and this was below our -$0.1 million forecast. The EBITDA miss was primarily attributable to higher than forecasted production costs and sales and marketing expenses.

The analyst thinks that Delta 9 will generate 2019 revenue and EBITDA of $65.9 million and $16.6 million, respectively, and 2020 revenue and EBITDA of $98.0 million and $31.1 million, respectively. His target price stems from applying a 12x EB/EBITDA multiple to his 2020 estimate and represents a projected return of 151.6 per cent at the time of publication.