Industrial Alliance Securities analyst Nav Malik launched coverage of US cannabis company Flower One Holdings (Flower One Holdings Stock Quote, Chart, News CSE:FONE) on Monday with a “Buy” rating and C$4.50 target price.
Malik says Flower One Holdings is positioned to be the preeminent supplier in Nevada’s strong and growing pot market.
Cannabis cultivator, producer and wholesaler, Flower One, owns and operates the largest commercial greenhouse (455,000 sq ft) in the state of Nevada, which legalized medical cannabis in 2001, opened its first legal dispensaries in 2007 and then started adult-use sales in July of 2017.
Malik says Nevada’s cannabis market is expected to keep up its pace of strong growth, where legal sales of both rec and medical marijuana totaled $639 million over the past 12 months, representing a 20 per cent year-over-year growth rate.
Flower One Holdings has eight licenses currently for its two facilities, for rec and medical cultivation and manufacturing, with cultivators in the state sell to licensed retailers but not directly to consumers.
“We believe Flower One (Holdings) shares represent an attractive buying opportunity at current levels now that the conversion of the flagship greenhouse is complete and the Company focuses on increasing its penetration of the Nevada market…”
Malik says wholesale pricing in Nevada has stayed relatively strong since adult-use legalization.
“Flower One has reported impressive operating metrics to date, with an average yield of 38.3 grams per sf per harvest (or 230 grams per sf annually) at a cash cost of $0.45 per gram. These are industry leading metrics as we estimate yields for Canadian cannabis licensed producers (LPs) are 100 to 150 grams per sf, while costs even for ‘low-cost’ LPs are in the C$1.00-1.50 per gram range,” says Malik.
Currently with a portfolio of 11 brand partners, Flower One handles the full production and distribution process, manufacturing finished packaged products for brands entering Nevada’s market.
Malik says that with the company’s NLV Greenhouse now completed, market penetration through partnership agreements as well as bulk sales will be key for FONE.
“We believe Flower One shares represent an attractive buying opportunity at current levels now that the conversion of the flagship greenhouse is complete and the Company focuses on increasing its penetration of the Nevada market,” he writes.
The analyst is forecasting fiscal 2019 revenue and adjusted EBITDA of $9 million and negative 6 million, respectively, and fiscal 2020 revenue and adjusted EBITDA of $82 million and $41 million, respectively. Those numbers jump to $168 million and $84 million, respectively, for fiscal 2021. (All figures in US dollars unless where noted otherwise.)
Malik’s C$4.50 target, which is based on an EV/EBITDA multiple of 8.0x applied to his 2021 estimates, represented a projected 12-month return of 136.8 per cent at the time of publication.
Las Vegas-based Flower One announced on Monday the official operational launch of its “technologically advance” production lab at its flagship greenhouse, with the 55,000 sq ft lab able to consume between 3,000 and 5,000 pounds (1360 to 2268 kg) of biomass per week.
“The product and test results coming out of the lab mark another huge milestone for Flower One and our ability to produce premium quality cannabis products,” said Kellen O’Keefe, Chief Strategy Officer at Flower One. “Flower One is thrilled to bring some of the nation’s leading cannabis brands to Nevada’s retailers and consumers.”