The rollout of adult-use cannabis in the potentially lucrative state of Michigan is picking up steam, which will be a positive for US cannabis play Cansortium (Cansortium News, Stock Quote, Chart CSE:TIUM.U), says Corey Hammill, analyst for Paradigm Capital.
On Friday, Hammill reiterated his “Buy” rating on Miami-based TIUM, which he sees as a solid investment opportunity in the medium to long-term.
Michigan state officials this past Wednesday released a set of emergency rules to govern the operations of the state’s new adult-use market (Michigan has yet to start sales of rec pot and has set November 1, 2019, as when it will begin taking business license applications). Reportedly, the intent of the new rules is to give local municipalities time to decide whether or not to allow adult-use cannabis businesses within their jurisdictions.
Cansortium is expecting, through an acquisition, to hold licenses to grow 36,000 plants and to open up eight dispensaries in Michigan, a state that has already has a high number (over 300,000 for a population of ten million) of patients per capita — the high count stems from the relatively large list of 20 indications warranting a prescription, says Hammill, who sees TIUM with the potential to generate over US$20 million in wholesale revenue in Michigan in 2020.
“We do not expect this temporary legislation to have a meaningful impact on Cansortium’s 2019 revenue but is a signal that the Governor is pushing forward the rollout of adult-use cannabis, which we expect will contribute to 2020 results,” Hammill writes.
“We rank Cansortium’s near-term opportunities as: (1) continue rapid expansion in Florida; (2) leverage recent expanded cannabis in Texas (TIUM one of just 3 license holders in the state); and (3) establish a footprint in Michigan,” he writes.
Hammill says that TIUM is undervalued relative to its peers, with the stock’s valuation coming solely from the company’s Florida rollout and not assigning any value to the company’s opportunity in Texas (which Hammill says is potentially huge) or in Michigan.
“Through Cansortium, investors are essentially getting a free option on Michigan, which BDS Analytics estimates could reach ~$1.4B in sales by 2022,” he writes. “We see TIUM as a solid opportunity for investors with medium- to long-term investment horizons.”
Hammill’s “Buy” rating comes with a one-year maintained range of between C$2.40 and C$3.40, which, averaged out to C$2.90, implies a return of 79 per cent at the time of publication.