Analyst Corey Hammill of Paradigm Capital says US cannabis company Green Growth Brands (Green Growth Brands Stock Quote, Chart CSE:GGB) has assembled a virtual dream team of retail expertise, with the analyst giving GGB a “Buy” rating in his coverage initiation on Thursday.
Columbus, Ohio-based Green Growth commenced listing on the Canadian Securities Exchange this past November and is backed by the Schottensteins of American footwear chain DSW fame, one of the wealthiest families in the US, Hammill notes.
The analyst likes the company’s makeup, which he says is comprised of a management team highly experienced in retail and brands and an R&D team that has a combined 70-plus years of experience in consumer goods.
Green Growth is focused on both CBD/wellness products and THC-based products, with Hammill asserting that there’s a tonne of runway ahead for the company.
“Green Growth Brands boasts the most experienced retail team in the North American cannabis space and has relationships to access a large distribution network at little to no cost. We believe this provides GGB with a fundamental competitive advantage, which, paired with the lucrative market opportunity, has the potential to generate half-a-billion in annual revenue for the company within the next five years,” Hammill said in his coverage launch.
Rather than providing an absolute target price, Hammill is giving a target range. He sees the cannabis space evolving into an industry similar to that of specialty retail, whose companies trade at 3-4x forward revenue, with the wellness space —where Hammill places GGB— trading at 2.5-3.0x revenue.
“Given the early stage but aggressive plan for GGB’s retail build-out, we believe it is appropriate to assign a higher near-term revenue multiple, moderating it over time. Our analysis values GGB using a 5x near-term revenue multiple, declining to a long-term 3x multiple in 2022,” he says.
That modelling puts GGB in a near-term share price of approximately C$5.00 per share, which the analyst puts as increasing to C$9.00-plus over four years. The C$5.00 rough target would translate into a one-year return of 17.9 per cent at the time of publication
Hammill thinks GGB will generate fiscal 2019 revenue and EBITDA of $27.9 million and negative $8.9 million, respectively, and fiscal 2020 revenue and EBITDA of $149.6 million and $51.5 million, respectively. (All figures in US dollars unless noted otherwise.)