Stifel Canada analyst Robert Fagan is staying bullish on cannabis extract company PharmaCielo (PharmaCielo Stock Quote, Chart, News TSXV:PCLO) who just announced a major European supply agreement.
In an update to clients on Tuesday, Fagan reiterated his “Buy” recommendation and C$9.00 price target, which at press time represented a projected 12-month return of 161 per cent.
Toronto-headquartered PharmaCielo, which processes medicinal-grade cannabis oil extracts and related products and has its principal subsidiary in PharmaCielo Columbia Holdings in Rionegro, Columbia, announced on Tuesday that it has entered into a three-year agreement with XPhyto Therapeutics, which owns two German subsidiaries, one of which is Vektor Pharma TF, a licensed narcotics manufacturer operating an EU GMP-certified lab, with cannabis importation permits.
The deal represents a significant opportunity for PCLO to export into the German market, said PharmaCielo CEO David Attard.
“As the largest medicinal cannabis marketplace in Europe, Germany is also the most demanding in terms of product quality. Our ability to meet market requirements for verifiable quality parameters was essential to establishing the relationship. We expect to generate meaningful revenue through this agreement over the next three years and are focused on continuing the ramp-up of our sales efforts through 2020,” said Attard in a press release.
The largest distribution deal yet for PharmaCielo, total minimum delivery is targeted at 30,000 kg of cannabis extracts over the three-year period, with shipments from PCLO expected to start in mid-2020 following regulatory approval.
Fagan says PCLO could deliver up to 2,000 kg of extracts with shipments ramping up on a monthly basis alongside capacity, with volumes in 2021 expected to rise, potentially reaching 10,000 kg, with the remaining 18,000 kg likely to be delivered over the course of 2022.
Fagan says despite the large volumes, the timing of PCLO’s facility expansion and planned cadence of shipments should be well-matched to the company’s growth in capacity (PCLO’s current annual processing capacity is 10,000 kg) and should leave it with ample room in 2021 for other distribution deals.
“With two supply agreements signed recently, PCLO is making solid progress on distribution in our view. This has increased visibility on our forecasts with first year volumes potentially representing sales of ~US$10–15 million, or ~20–30 per cent of our calendar 2020 revenue estimate. We note PCLO has now made solid in-roads into both the US and EU markets, helping to de-risk its outlook,” Fagan wrote in his update.
Looking ahead, Fagan sees PCLO generating revenue and EBITDA in fiscal 2020 of $46.4 million and $4.9 million, respectively, and revenue and EBITDA in fiscal 2021 of $135.4 million and $66.8 million, respectively. (All figures in US dollars unless where noted otherwise.)
Last September, PharmaCielo received its first US sales agreement, one with General Extract, a US distributor of hemp-derived CBD, with sales and distribution of PCLO’s CBD isolate products heading to California and Colorado.
PharmaCielo began trading on the TSX Venture on January 18, 2019 and finished the year down 38 per cent.
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