Columbia Care is hugely undervalued, Beacon Securities says

Beacon Securities analyst Russell Stanley likes the look of US cannabis play Columbia Care (Columbia Care Stock Quote, Chart, News NEO:CCHW), which just opened four more dispensaries —one in Maryland, one in Delaware and two more in Florida.

In an update to clients Thursday, Stanley reiterated his “Buy” recommendation and C$14.00 target price for Columbia Care, which represented a projected 12-month return of 250 per cent at the time of publication.

New York-headquartered Columbia Care, which has cultivation, production and manufacturing operations across now 12 states with interests in two others, announced on Thursday the addition of four new cannabis dispensaries. With the announcement, the company opened its first store in Maryland in Chevy Chase, just north of Washington DC, its second store in Delaware in Wilmington as well as two more in Florida (for a total of nine) in Sarasota and Jacksonville.

“Columbia Care (stock) now trades at approximately 3.8x our F2021 EBITDA estimates, representing a 65 per cent discount to the broad peer group average of 10.9x…”

Columbia CEO Nicholas Vita said that the company’s “significant” cash position along with having no debt gives Columbia one of the strongest balance sheets in the industry, giving it the growth capital to fund its expansion strategy.

“We are proud to execute on the plan we previously described to our investors, and by leveraging this strong foundation, we look forward to reaping the benefits of having one of the largest organically developed national cannabis platforms in the US. Opening these four additional dispensaries in key markets across the country represents significant progress and points to an accelerated pace of activity as we near the completion of this transformational year,” said Vita in a press release.

In total, Columbia now has 21 operating dispensaries and licenses for more than 40 others. Management says that it will operationalize its remaining licenses by the year end while setting up launches in New Jersey and Virginia this quarter.

In his report, Stanley writes that New York Governor Cuomo is hosting a summit in midtown Manhattan to meet with lawmakers in neighbouring states including New Jersey, Connecticut, Massachusetts and Rhode Island to develop a unified adult-use legalization model. The analyst points out that Columbia Care already operates the maximum four dispensaries in New York out of 37 operational in the state, while he believes that Columbia has a significant market share in the state.

“The company is also poised to open its first operations in New Jersey later this quarter. Adult-use legalization in either/both of these states should significantly increase the company’s addressable market,” Stanley writes.

“Columbia Care now trades at approximately 3.8x our F2021 EBITDA estimates, representing a 65 per cent discount to the broad peer group average of 10.9x, and a 37 per cent discount to the 6.0x average amongst other US operating cannabis companies. Potential catalysts include further updates on buildout progress, adult-use approval for the company’s dispensary in Boston, potential M&A activity, and the Q3/19 results in November,” he writes.

Stanley thinks that Columbia Care will generate revenue and attributable EBITDA in fiscal 2019 of $87 million and negative $42 million, respectively, and revenue and attributable EBITDA in fiscal 2020 of $307 million and $52 million, respectively. (All figures in US dollars except where noted otherwise.)