The Supreme Cannabis Company is a cheap pot stock: GMP

A new cultivation and genetics venture could spur further revenue growth for The Supreme Cannabis Company (The Supreme Cannabis Company Stock Quote, Chart TSX:FIRE), says analyst Robert Fagan of GMP Securities, who in a research update to clients on Monday reiterated his “Buy” recommendation and $3.25 per share target price.

Canadian licensed producer Supreme Cannabis on Monday announced the launch of Cambium Plant Sciences, a wholly-owned subsidiary of Supreme Cannabis, which will focus on cannabis genetics research. FIRE plans to invest $14 million in the construction of a 34,000 square foot research and development facility in Goderich, Ontario, which will include proprietary growing rooms for testing and selection of new cannabis genetics, along with breeding rooms for the creation of new seed stock.

CEO Navdeep Dhaliwal said the strong industry demand for FIRE’s proprietary genetics and cultivation techniques motivated the creation of Cambium.

“It was as a result of the demand that we saw a global opportunity to create a company whose sole focus is innovating plant genetics and cultivation IP for the global cannabis market. We believe genetics are the foundation of proprietary cannabis products in the long term,” said Dhaliwal, in a press release. “Cambium will develop cultivars that benefit our in-house brands, as well as our domestic and global cultivation and manufacturing partners.”

Fagan says Cambium offers a new slant on cannabis IP, one which could be a source of revenue for the company.

“The licensing model proposed by Cambium appears to us to be a differentiated approach to bring IP to market, in our view, as few other LPs are adopting this business model, to our knowledge. We highlight this is a smart way to leverage FIRE’s reputation for premium product quality as the initiative to create Cambium was spurred from strong industry demand for FIRE’s proprietary genetics,” Fagan says.

“We believe the efforts at Cambium could produce improvements to existing cultivars and create the next sought-after cannabis strain, amongst others. Given FIRE’s relatively fewer number of strains currently in production vs peers, the potential increase in its product portfolio variety could support future revenue growth,” he adds.

Fagan’s $3.25 target price represents a 12-month projected return of 65 per cent at the time of publication.