PharmaCielo is a double, says GMP Securities

GMP Securities analyst Robert Fagan says a first US sales agreement for cannabis oil extraction company PharmaCielo (PharmaCielo Stock Quote, Chart, News TSXV:PCLO) is a definite milestone for the company and one that came sooner than expected.

The analyst delivered a flash update on PharmaCielo to clients on Wednesday where he reiterated his “Buy” rating and C$12.00 target price, representing a projected one-year return of 118.5 per cent at the time of publication.

Toronto-based PharmaCielo focuses on processing and supplying all-natural medicinal- grade cannabis oil extracts and related products, with its principal subsidiary being PharmaCielo Columbia Holdings, which has a nursery and propagation centre in Rionegro, Columbia.

On Tuesday, the company announced the signing of a sales agreement with General Extract, a multi-state distributor of hemp-derived CBD. The agreement covers sales and distribution of PCLO’s CBD isolate products in multiple US states, including California and Colorado.

PharmaCielo is expecting to ship $3 million in CBD isolate to General Extract in 2019 with the option for renewal in 2020 and to increase volumes as dictated by market demand. (All figures in US dollars unless where noted otherwise.)

General Extract, which was founded in 2015 in Colorado, is a subsidiary of First Colombia Development Corp, an OTC-listed public holding company, which last week changed names to Redwood Green Corp and has dispensaries in Colorado.

“The 2018 Farm Bill introduced an entirely new category and opportunity for an earlier entry into the United States marketplace, one of the world’s leading medicinal CBD markets,” noted David Attard, CEO of PharmaCielo, in a press release. “To say we are excited about this milestone is an understatement. Our business strategy is focused on large-volume, large-market relationships, and we are fully equipped to process in excess of 265 metric tonnes of dried flower into isolates and extracts to meet the high demand, with continued processing capacity expansion under way.”

Fagan says that with PCLO’s confirmation of its initial shipments of CBD isolate into the US it has confirmed an important tenet of the analyst’s investment thesis, namely that there exists a logistical pathway for PCLO to export CBD isolate into the US, a first for any Colombian licensed producer.

“This first sales agreement into the US represents a major milestone in PCLO’s strategic development, which has been achieved ahead of our expectations,” writes Fagan.

“We had previously only anticipated PCLO to gain access to the US market beginning in Q2/2020. Hence, this should allow PCLO to penetrate and ramp up operations earlier than expected in the largest CBD market globally, potentially providing greater support for our overall 2020 sales forecast of $93 million.”

“Lastly, with the General Extract agreement representing contracted sales of ~$3 million for Q4/19, this represents ~60 per cent of our Q4/19 forecast for PCLO of ~$5 million (including projected contribution from Creso Pharma),” Fagan writes.

PharmaCielo last reported its quarterly financials on August 27 where it showed total operating expenses of $8.8 million and a net loss of $10.7 million, with cash and short-term investments of $33.2 million as of June 30, 2019.