Cannabis CPG company SLANG Worldwide (SLANG Worldwide Stock Quote, Chart, News CSE:SLNG) is a “Buy,” according to M Partners analyst Paul Piotrowski, who delivered a client update on SLANG on Monday.
The recent spate of vaping-related illnesses and deaths has spooked investors on both the cannabis space in general and SLANG in particular, whose share price has fallen dramatically since its debut earlier this year.
But investors should be looking past the headlines to SLANG Worldwide’s diverse portfolio of cannabis products, including many successful non-vape brands, according to Piotrowski, whose maintained “Buy” rating comes with a reaffirmed C$2.00 target price.
Last week, the US Centers for Disease Control and Prevention reported a new total of 1,479 lung injury cases and 33 deaths associated with e-cigarette or vaping use, up about 200 cases from the previous week. While the exact cause of the phenomenon is still unknown, the majority of patients have reported using THC-containing products bought on the black market, which has led investigators to speculate that illicit vape cartridges and/or additives in the products could be at the root of the problem.
Currently, a number of US states have implemented bans on either certain forms of vaping products (flavoured e-cigarettes, in the main) or outright, temporary bans on all vaping products.
The issue has knocked down already-depressed cannabis stocks across the board, including SLANG, which after its $2.00 per share debut in January has fallen 80 per cent to $0.415 per share as of early trading on Tuesday.
But Piotrowski says that none of SLANG’s products contains the additives now linked to vaping illnesses (including vitamin E acetate, polyethylene glycol and medium chain triglycerides) and, further, its stable of brands stretches well beyond vaping. SLANG sells the highly successful O.penVAPE product line as well as the Firefly 2+ dry flower vaporizer but it also owns non-vape brands like District Edibles, which is a top ten gummy brand in California, generating over 60 per cent of SLANG’s revenue in the state during this year’s second quarter.
“In our view despite a string of negative headlines, the implemented bans do not negatively impact SLANG’s business. Flavoured vaping bans actually present an opportunity for increased shelf space for SLANG’s branded products, which are not affected by the bans,” writes Piotrowski.
The analyst says that his investment thesis rests on a number of factors, including: the SLANG Worldwide portfolio of brands which is among the most successful in the US, the company’s capital light business model which creates global reach at a low cost, SLANG’s extensive footprint across the US and internationally with products currently distributed in 12 US states and across five continents, an experienced management team with a track record of successful exits and, finally, SLANG’s comparatively cheap valuation, where it currently trades at 0.7x 2020 revenue and 2.9x 2020 EBITDA compared to its peers at 1.5x revenue and 10.x 2020 EBITDA. \
“At current valuations, SLANG presents a very exciting opportunity to gain exposure to one of the best-selling cannabis brand portfolios in the US, with a growing international presence,” writes Piotrowski.
The analyst thinks that SLANG Worldwide will generate fiscal 2019 revenue and EBITDA of $31.7 million and negative $11.4 million, respectively, and fiscal 2020 revenue and EBITDA of $216.9 million and $49.9 million, respectively. His C$2.00 target represents a projected return of 406 per cent at the time of publication. (All figures in US dollars unless where noted otherwise.)