Columbia Care is a massively undervalued cannabis stock, Beacon says

US cannabis company Columbia Care (Columbia Care Stock Quote, Chart, News NEO:CCHW) continues to trade at a significant discount to its pot sector peers, according to Beacon Securities analyst Russell Stanley who provided an update to clients on Monday where he maintained his “Buy” rating and C$14.00 target price, representing a projected return of 365 per cent at the time of publication.

Headquartered in New York City, Columbia Care has interests in 14 states including active operations in ten, while the company is also working on building a presence in Germany, the United Kingdom and Malta.

On Tuesday, the company announced the opening of two new dispensaries in the state of Florida, in Cape Cora and Orlando, with the expectation being for two more in Bonita Springs and Melbourne to be operational within the next two weeks.

“Florida continues to be one of the fastest growing medical cannabis markets in the US, and Columbia Care is proud to be a part of that growth story,” said Nicholas Vita, CEO, in a press release.

At the same time, the company announced having received state approval in Florida to sell dried flower in its dispensaries, with Columbia Care having earlier this year started expansion of its cultivation and manufacturing operations at two locations in the state.

Stanley notes that the four new stores brings Columbia Care’s Florida total to seven.

“Importantly, the company guided to having 13 more open by year end, pending regulatory approval. While construction timelines are more/less in the company’s control, the timing of final inspections is less so, so we would not be surprised to see some stores completed in December, with official openings spilling in January,” wrote Stanley.

“Columbia Care also recently received approval to begin selling smokable dried flower from its dispensaries, and sales are expected to begin December second. This is crucial, as flower has quickly become 50 per cent of the sales mix for a number of cannabis companies, following its legalization in March 2019,” he said.

Earlier this month, Columbia Care reported its third quarter 2019 financials where it registered $22.1 million in revenue, a 123-per-cent increase year-over-year and up 25 per cent over the previous quarter. Adjusted EBITDA came in at negative $11.3 million compared to negative $4.2 million a year earlier. The company ended the quarter with $84.5 million in cash and no debt. (All figures in US dollars unless where noted otherwise.)

Comparing with other companies in the space, Stanley says that while several multi-state operators have announced plans to moderate their expansion efforts in Florida so as to dedicate resources to other markets, Columbia Care has “chosen to build-over-buying its Florida presence.”

“Management has consistently stated that its expansion plans for the company are fully funded. Columbia Care’s rapid retail buildout plan, combined with the moderating growth plans of peers, gives CCHW a strong chance of gaining ground quickly,” Stanley wrote.

The analyst estimates that CCHW is currently trading at a 74 percent discount to its broader peer group and a 47-per-cent discount to its US operating cannabis peers. Looking ahead, Stanley sees potential catalysts in adult-use approval for the company’s dispensary in Boston, progress on the The Green Solution acquisition announced earlier this month and the company’s fourth quarter 2019 results.