Canopy Rivers announced on Monday that its 49-per-cent-owned PharmHouse joint venture has received its cultivation license from Health Canada and will immediately start operations in the 190,000 sq ft licensed nursery space. The JV has plans to ramp up the facility’s full 1.3 million sq ft greenhouse before the end of 2019. Keywood notes that PharmHouse has commercial offtake agreements for a combined 50 per cent of its 2020 production with Canopy Growth and TerrAscend Corp.
“We see the licensing announcement as a de-risking event that helps provide transparency to the progress towards achieving the 2020 attributable EBITDA guidance of $70 million to $80 million,” writes Keywood in a client update. “This is roughly 65 per cent of the total guided range for 2020 attributable EBITDA of $105 million to $130 million, at the midpoint. Therefore, today’s announcement and the associated de-risking is material for RIV’s overall investment portfolio. We expect that further transparency on Rivers’ assets should help convey the company’s value proposition.”
Last week, RIV announced its fourth quarter and fiscal 2019 year-end results, generating a quarterly net operating income loss of $1.43 million and basic earnings per share loss of $0.01 per share. Those numbers compared to a net operating income a year prior of $17.2 million and EPS of $0.12 per share.
Keywood says that with a fully diluted enterprise value of about $500 million, RIVV is trading at less than 5x 2020 EBITDA, based on the midpoint of the company’s attributable guidance range and without assigning any value to 15 of its 18 investments. His $8.00 target stems from a 2x multiple applied to his NAV estimate of approximately $4.00 per share and represents a projected 12-month return of 166.7 per cent at the time of publication.
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