Flower One Holdings is a double, Mackie Research says

Mackie Research analyst Greg McLeish says completing a new financing round will help US cannabis company Flower One Holdings (Flower One Holdings Stock Quote, Chart CSE:FONE) execute to plan.

In a coverage resumption on Monday, the analyst reiterated his “Buy” rating while lifting his price target from C$4.50 to C$5.50 per share, representing a projected return of 108 per cent at the time of publication.

Nevada-based Flower One announced on March 28 the closing of a C$50-million offering of convertible debenture units (the company further announced on Monday the full exercise of the over-allotment option of an additional C$7.5 million in proceeds).

The company says that the funds will go towards expansion of its operations in Nevada, namely, the retrofitting of its NLV Greenhouse in North Las Vegas, the repayment of a vendor note in connection with its purchase of NLV Organics, the strengthening of its branding and retail strategies and other working capital expenses.

In his note to clients, McLeish stresses that Nevada is currently developing a robust cannabis industry, while across the United States, industry dynamics are “very compelling.”

“Once these [US] companies achieve economies of scale and improve operational efficiencies, they should be able to generate EBITDA margins in excess of 30 per cent,” says McLeish.

“The closing of the C$50 mm convertible debenture financing will allow Flower One to execute on its business plan and the recently announced licensing agreements and brand partnerships will help to underpin our financial forecasts through 2020. As a result, we are increasing our target multiple on Flower One to 10.0x EV/EBITDA (previously 8.0x),” he says.

McLeish expects FONE to generate fiscal 2018 revenue and EBITDA of $241,000 and negative $4.2 million, respectively, fiscal 2019 revenue and EBITDA of $134.9 million and $45.1 million, respectively, and fiscal 2020 revenue and EBITDA of $251.1 million and $90.1 million, respectively.