Heritage Cannabis’s deal with Cronos gets thumbs up at PI Financial

Following the announcement of a new contract with Cronos, PI Financial analyst Devin Schilling is maintaining his “Buy” rating on Heritage Cannabis (Heritage Cannabis News, Stock Quote, Chart CSE:CANN).

On Thursday, Heritage Cannabis announced it had entered into a contract with Cronos Group which will see the former provide extract fill and package vaporizer devices for the latter’s Spinach and Peace Naturals brand.

“This contract manufacturing agreement with Cronos Group is an important, and significant milestone for Heritage as we continue to execute on our plan to establish ourselves as an industry leader for extracted products,” CEO Clint Sharples said.

“We are excited to be working with Cronos Group, which has established itself as a front runner in the global cannabis industry. We believe Cronos Group has an exceptional vision for the vaporizer category, and Heritage will be a key partner in helping them achieve their goals in the Canadian market now and in the future.”

The Heritage Cannabis Cronos deal is a clear positive for CANN, analyst says…

Schilling says this development is a clear positive for CANN.

“This deal represents Heritage’s first vape pen contract manufacturing agreement,” the analyst says. “Cronos is currently the third largest LP in Canada and this agreement validates Heritage as a major player in the extraction sector. Contract manufacturing agreements like this one represents higher margin activities than selling just bulk crude oil and results in better economics per unit of extraction capacity.”

In a research update to clients today, Schilling maintained his “Buy” rating and one-year price target of $1.00 on Heritage Cannabis, implying a return of 85.2 per cent at the time of publication.

Schilling thinks CANN will post EBITDA of $11.3-million on revenue of $53.8-million in fiscal 2020. He expects those numbers will improve to EBITDA of $32.0-million on a topline of $106.0-million the following year.