iAnthus Capital has a 55 per cent upside, says GMP Securities

In a coverage resumption on Tuesday, GMP Securities analyst Robert Fagan says US cannabis company iAnthus Capital Holdings (iAnthus Capital Holdings Stock Quote, Chart CSE:IAN) currently trades at an unjustified discount to its closest peers.

Fagan has reiterated his “Buy” rating and C$11.00 target price for IAN, which translates to a 12-month return of 55.4 per cent at the time of publication.

Multi-state operator iAnthus Capital has been busy over the past month, acquiring national CBD brand, CBD For Life, for an aggregate price of approximately $15.7 million while also raising $35 million through a convertible note offering. (All figures in US dollars unless otherwise noted.)

It’s all part of the company’s evolution into a larger-tier operator, says Fagan, who points to the purchase of MPX Bioceutical (closed in February 2019) as a turning point.

“IAN’s acquisition of MPX is transformational in our view, as the transaction has allowed two formerly mid-tier operators to evolve into one of the US cannabis industry’s larger-tier companies. This is underpinned by IAN’s pro-forma platform which features roughly the same number of store licences, open retail locations, and currently operational production facilities as the average of GTII, HARV, CL and TRUL, whom we consider to be IAN’s closest peer group. We believe IAN’s graduation to a larger-tier operator should lead to a valuation re-rating,” says Fagan.

The analyst holds that there should be a $3.00-to-$7.00 share price upside attached to iAnthus’ operations in New York, New Jersey and Vermont if and when these states complete their respective moves from medical-only states to medical and recreational states.

“IAN shares are down ~11 per cent over the past month, and now trading at ~9x 2020 EBITDA, a ~7x discount to peers, which we view as unjustified. Hence, this presents an ideal entry point for investors in our view,” says Fagan.

The analyst has updated his forecasts to account for the company’s fourth quarter 2018 results (announced on April 2) as well as the contribution from the CBD For Life acquisition. Fagan is now calling for 2019 revenue and EBITD of $127.2 million and $9.7 million, respectively, and 2020 revenue and EBITDA of $320.4 million and $117.3 million, respectively.