Heritage Cannabis Holdings gets price target bump at PI

It’s been a volatile couple of years for Heritage Cannabis Holdings (Heritage Cannabis Holdings Stock Quote, Chart, News CSE:CANN) but momentum looks to be building for the extraction company.

That’s according to PI Financial analyst Devin Schilling who delivered a corporate update on CANN on Tuesday where he upped his target price from $0.60 to $0.70 per share.

Heritage Cannabis on Tuesday announced it had entered into a supply and manufacturing agreement with James E. Wagner Cultivation Corp (JWC) via Heritage’s CannaCure Corporation subsidiary for the the filling and packaging of vape pen cartridges for the Canadian market. The 12-month agreement will see JWC provide CannaCure with 100 kg of aeroponically-grown premium-grade cannabis biomass per month for processing and packaging.

“We are thrilled to have been selected by JWC as their extraction partner for their vape pen products,” said Clint Sharples, CEO of Heritage, in a press release. “Our direct-to-vape technology combined with our proprietary methodology ensures reliable quality products will be delivered our partners for safe distribution into the Canadian adult-use market.”

Vertically-integrated cannabis company Heritage has two licensed cannabis producing subsidiaries, Voyage Cannabis and CannaCure, along with extraction company Purefarma Solutions and medical cannabis company BriteLife Sciences.

Schilling is calling the new deal a positive for the company, saying that it could be worth between $5 and $10 million over the 12-month term, depending on the roll-out and uptake of vape pens in Canada. The analyst says that the agreement expands Heritage’s customer base through a quality operator in JWC and provides further revenue diversification opportunities over the longer term.

“Heritage’s extraction subsidiary (Purefarma) is one of the most experienced groups in the sector with over five years of extraction history. This head start has resulted in Purefarma becoming experts in their field with their ‘direct-to-vape’ process which creates premium oil that doesn’t require additives or artificial flavors being cut into the vaping oil,” writes Schilling.

“Heritage has seen a recent uptick in contract announcements as of late which may be linked to LPs increasing their focus on higher-quality oils due to the recent bad press on vape related illnesses. We expect more deals like this moving forward in anticipation of the Cannabis 2.0 rollout later this year,” he says.

The analyst says  the new agreement backfills his current revenue projections, where he is forecasting $3.3 million, $53.8 million and $106.0 million in revenue for fiscal years 2019, 2020 and 2021, respectively. On earnings, Schilling thinks Heritage will generate negative $7.8 million in EBITDA in fiscal 2019 before turning positive in 2020 with $10.0 million in EBITDA and then $31.5 million in fiscal 2021. (All figures unchanged.)

With the client update, Schilling is reiterating his “Buy” rating and risk rating of “Speculative” but is upping his target to $0.70 due to an increase in peer multiples. The target now represents an EV/EBITDA multiple of 10x based on his fiscal 2021 estimates (previously 8.5x) which is in line with peer group averages.

Schilling’s new price target o Heritage Cannabis Holdings represented a projected 12-month return of 118.8 per cent at the time of publication.