US multi-state operator Columbia Care (Columbia Care Stock Quote, Chart, News NEO:CCHW) received a coverage initiation from PI Financial on Wednesday, where analyst Jason Zandberg started the stock off with a “Buy” rating and C$11.00 price target, saying that best-in-class management plus exposure to half of the cannabis markets in the United States make Columbia Care a stand-out choice.
New York-headquartered Columbia Care is a vertically-integrated cannabis business with licenses and operations across 16 US jurisdictions as well as a license in Malta, pro-forma including The Green Solution (TGS), which Columbia Care has announced its intention to acquire.
Columbia Care has on a pro-forma basis up to 96 facilities including those in four adult-use states, California, Colorado, Illinois and Massachusetts and in 12 medical-only jurisdictions. Following the Green Solution acquisition, Columbia Care’s license portfolio allows for more than one million sq. ft. of indoor cultivation and more than 240 acres of outdoor cultivation, with a capacity to produce over 425,000 lbs of dried flower annually.
This past November, Columbia Care announced the definitive agreement to acquire The Green Solution, the largest vertically-integrated cannabis operation in Colorado, for $140 million.
Zandberg said the TGS acquisition will be a big boost to Columbia Care, which to this point has more than 90 of total revenue coming from dispensaries, with the remaining less than ten per cent from wholesale revenue. The analyst sees TGS contribution $40 million in revenue in 2020 or 18 per cent of total revenue for fiscal 2020.
“Fiscal 2020 revenue growth will be based on buildout of new dispensaries, market growth within each state it operates, as well as market the closing of TGS acquisition. We would like to emphasize again that TGS is the largest operator in the second largest market in the US, which will position Columbia Care as one of the leading MSO’s. We anticipate the dispensary count will increase from 30 locations to 71 locations (TGS adds 23 locations),” Zandberg wrote in his coverage initiation.
Zandberg emphasized Columbia Care’s best-in-class management and board, which he says includes a wealth of experience in branding, medical, retail, capital markets, legal and regulatory, setting the company apart from many of its MSO peers in the US.
As well, the analyst pointed to heavy insider ownership of CCHW, where the two founders, Nicholas Vita, CEO, and Michael Abbott, Chairman, together own 37 per cent of outstanding shares, with those shares being equal voting alongside all other shareholders, thus ensuring that control and vesting interests are aligned with all other shareholders.
Further, Zandberg likes Columbia Care’s library of IP and R&D partnerships along with its development of proprietary pharmaceutical-quality products, which together distinguishes CCHW from its MSO peers.
Zandberg thinks Columbia Care will generate sales of $81.8 million, $224.1 million and $460.3 million for fiscal years 2019, 2020 and 2021, respectively. EBITDA forecasts are for negative $42.6 million, $14.1 million and $130.7 million, respectively. (All figures in US dollars unless where noted otherwise.)
The analyst’s C$11.00 target stems from an EV/EBITDA multiple of 13.5x on his fiscal 2021 estimates and translates to a projected return of 130.6 per cent at the time of publication.