Cansortium is hitting the reset button, says Paradigm Capital

US cannabis company Cansortium (Cansortium Stock Quote, Chart, News CSE:TIUM.U) is selling some of its assets as part of its ongoing reorganization, and with its stock now down almost 80 per cent since going public earlier this year, Paradigm Capital analyst Corey Hammill thinks Cansortium
presents an attractive takeout opportunity for the right buyer.

In an update to clients on Wednesday, Hammill reiterated his “Buy” rating and price target range of C$1.25 to C$1.75.

Miami, Florida-based Cansortium is a medical cannabis company with cultivation, processing, formulation and sales through its widely distributed patient platform. The company on Tuesday announced the signing of definitive agreements to sell non-core assets in Canada and Puerto Rico, with the terms of the sales not yet disclosed.

Neal Hochberg, Chair of the Board and of the Special Committee for Cansortium said the sales will free up capital and reduce the company’s operating costs and allow Cansortium to “focus on the large, actionable opportunities in Florida and other U.S. markets, including Michigan, Texas and Pennsylvania.”

“The key objectives of the Special Committee's strategic initiatives are to generate value from the Company's non-core assets and to prioritize capital allocation toward profitable growth,” wrote Hochberg in a press release. “At the same time, we continue to evaluate strategic alternatives with respect to the Company's remaining non-core assets.”

In his update, Hammill noted the Canadian assets include 54 acres in Grimsby, Ontario, and up to 100,000 sq ft of a greenhouse cultivation facility, some of which is complete and some still to be developed. The Puerto Rico assets include a 2,000 sq ft cultivation facility and the right to open four dispensaries, two of which are currently open.

“As part of the reorganization, Cansortium has taken steps to conserve cash ($4.7 million annual cost savings program)  and recapitalize itself (recently taking back 26 million shares or ~14 per cent of shares outstanding from current and former senior management),” Hammill wrote.

“It has clearly shifted its focus back to near-term opportunities with the highest potential returns. Based on a full year of up to 20 stores in Florida plus the initial crop in Michigan, we forecast material growth commencing in H1/20 that should help revive shares, which have fallen ~79 per cent in value since TIUM’s March IPO, underperforming the American Cannabis Operator Index down ~63 per cent. We believe that if the share price lingers at these levels, Cansortium could become a takeout candidate for another multi-state operator with cash to spend,” said Hammill.

In his December 17 research note to clients on TIUM, Hammill described the company’s reorganization as ‘hitting the reset button’ and positioning Cansortium to “reverse its recent underperformance relative to its Florida-focused peer group and become a differentiated multi-state operator.”

Hammill thinks TIUM will generate fiscal 2019 revenue and EBITDA of $30.2 million and negative $19.6 million, respectively, and fiscal 2020 revenue and EBITDA of $76.7 million and $9.8 million, respectively. (All figures in US dollars unless where noted otherwise.)

His target price range has a midpoint of C$1.50 per share, which at press time on December 17 represented a 12-month projected return of 275 per cent.