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Green Growth Brands has an upside of 281 per cent, Paradigm Capital says

Green Growth Brands
Green Growth Brands CEO Peter Horvath

Investors are getting their first glimpse of financial growth from US multi-state operator Green Growth Brands (Green Growth Brands Stock Quote, Chart, News CSE:GGB), according to Paradigm Capital analyst Corey Hammill who reviewed the company’s latest quarterly results in an update to clients on Wednesday.

Columbus, Ohio-based Green Growth is currently growing its cannabis (THC and CBD) operations in the US through dispensaries in Nevada, Massachusetts and Florida along with CBD shops across the country. The company reported on Monday its financials for the period ended September 28, its fiscal Q2 of 2020, showing revenue up 77 per cent over the previous quarter to $12.7 million.

“We are proud of the topline growth we accomplished in Q1 and are extremely pleased with our current results, which are an indication of future growth,” said CEO Peter Horvath in a press release. “In fact, the four weeks of fiscal November, retail CBD sales were two-thirds of our total CBD sales reported in all of the thirteen weeks of first quarter fiscal 2020, which we are reporting today. This topline growth is reflective of our shift from investing in the foundation of our CBD business to focusing on its execution.”

The $12.7-million in revenue beat Hammill’s estimate of $11.8 million, while an EBITDA loss of $15.2 million was greater than the analyst’s anticipated loss of $7.7 million. Looking into the revenue growth, Hammill points to GGB’s CBD revenue, which was up 200 per cent sequentially to $5.1 million, while the company’s MSO Revenue was up 38 per cent sequentially to $7.6 million. Green Growth finished the quarter with cash of $6.8 million and about $56 million of $77 million in total in financial backstop commitment from the Schottenstein family. (All figures in US dollars unless where noted otherwise.)

“We continue to like GGB for management’s retail expertise. As we have said from the very beginning, GGB’s team knows what it takes to build retail brands to successfully compete in saturated US markets. However, despite its industry-leading dispensary efficiency numbers and its unique and valuable CBD business, GGB trades at a discount to MSO and non-cannabis specialty retail peers at 0.4x consensus 2021e sales versus ~2.0x and ~3.0x, respectively,” writes Hammill.

“The past eight months have been busy at Green Growth and we believe have set the foundation for FY20 and beyond. Our qualitative conclusion is that in a crowded, noisy, cash-starved cannabis market, we believe Green Growth Brands is unique in the depth of its management experience and expertise, breadth of its product offering and relationship with a supportive founding shareholder,” he said.

Hammill says GGB management is guiding for Q2 fiscal 2020 revenue of greater than $20 million, with equal contributions expected from its CBD and multi-state operator segments. The analyst says that the company’s EBITDA loss should narrow with each quarter going forward, with an EBITDA-positive timeline of one year. Hammill has lowered his forecasts for fiscal 2020 on revenue from $109.1 million to $98.7 million and on EBITDA from negative $21.3 million to negative $52.8 million.

With the client update, Hammill is reaffirming his “Buy” recommendation but altering his target price range to between C$3.50 and C$5.75, with a C$4.50 midpoint which at press time represented a projected 12-month return of 281.4 per cent.

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