Willow Biosciences has a huge upside, says AltaCorp Capital

With sales of cannabinoids expected in two years’ time, Willow Biosciences (Willow Biosciences Stock Quote, Chart, News CSE:WLLW) is on the cusp of a disruption in the still-emerging cannabis sector.

That’s according to AltaCorp Capital analyst David M. Kideckel who on Wednesday launched coverage of Willow with a “Speculative Buy” rating and one-year price target of $5.00.

Biosynthesis is as it sounds, the synthetic or lab-based production of a compound, in this case, cannabinoids for use in the growing medical pot market. While the science is still in the foundational stage, the theory is that pharmaceutical companies looking for cannabinoids will favour the cheaper, more reliable and consistent product coming from synthetically-derived compounds versus the labour-intensive, less consistent product arrived at through growing cannabis plants and then extracting the compounds.

Kideckel says that the entry of biosynthesis into the cannabis industry will amount to an inflection point, with biosynthetic cannabinoids in all likelihood becoming the preferred choice for pharmaceutical companies. And Willow — which emerged in March from the merger of Makena Resources with BioCan Technologies and Epimeron, going public also in March — is poised to be an early-mover in the space, the analyst says, who notes the company’s partnership with private company Noramco, one of the world’s largest suppliers of active pharmaceutical ingredients.

“In our view, biosynthetic cannabinoid production has the potential to disrupt the cannabis industry supply chain,” writes Kideckel. “Specifically, Pharmaceutical and CPG companies may rely primarily on biosynthetically derived cannabinoids considering their unique advantages related to reliability, scalability, and lower cost to produce rare cannabinoids.”

“Our bullish view on Willow is driven by its early-mover advantage in an industry which has disruptive market potential. The Company’s ongoing CBD program in collaboration with Noramco has the potential to capitalize on an enormous market opportunity.

Furthermore, Willow’s development strategy related to other cannabinoids presents significant upside potential.

“We are confident on Willow’s Management’s technical and business experience to steer the Company as a leading pure biosynthetic cannabinoid manufacturer. In our view, Willow’s current valuation is beneficial to investors with a long-term horizon,” writes Kideckel.

As far as key catalysts for the stock go, the analyst points to anticipated commercial milestones, with Willow’s scientific development related to cannabinoids expected to be complete by the second half of 2021, with sales to customers in the wellness segment to start at that time, sales of cosmetics, food and beverage will start in the first half of 2022 and sales to pharma companies expected by the second half of 2022.

Kideckel sees Willow generating no revenue in fiscal years 2019 and 2020, with $1.2 million in revenue
in 2021.

Others key triggers may include the company’s selection of a scale-up development partner, collaboration with CPG/Pharma companies, potential up-listing to the TSX, the improvement in the regulatory outlook of the cannabis industry and favourable R&D outcomes within the pharmaceutical industry with respect to cannabinoids.

“Currently, Willow’s market value implies a significant undervaluation as the Company is not yet in a revenue-generating phase and there is limited visibility on the biosynthetic production of cannabinoids. We believe Willow will rerate towards the value implied by its fundamentals as the Company moves towards its revenue-generating phase and clarity over the industry’s outlook improves,” says Kideckel.

The analyst’s $5.00 target represented a projected one-year return of 646 per cent at the time of publication.