VIVO Cannabis is the most attractive small-cap pot stock, says Clarus Securities

With European distribution and the launch of Cannabis 2.0 products both expected this year, VIVO Cannabis (VIVO Cannabis Stock Quote, Chart, News TSXV:VIVO) is the most attractive small-cap cannabis producer in Canada, according to Clarus Securities analyst Noel Atkinson, who launched coverage of the stock on Tuesday with a “Speculative Buy” rating and $0.70 per share price target, indicating a projected 12-month return of 115 per cent at the time of publication.

A company with a relatively lengthy history in the Canadian market, Vivo owns ABcann Medicinals, based out of Napanee, Ontario, and Canna Farms in Hope, BC. ABcann was founded in 2013 and received its first Health Canada license in March 2014, with now two licensed cultivation sites, while Canna Farms, which Vivo acquired in August 2018, was the first LP in BC to receive a cultivation license and won LP of the Year at the 2018 Lift & Co. Canadian Cannabis Awards.

Vivo Cannabis currently has four product brands: Beacon Medical, Canna Farms, Fireside and Lumina, and the company was one of the first LPs in the country to extract and sell cannabis oil products, with production now ongoing for Cannabis 2.0 products such as vapes, edibles, topicals and premium concentrates.

Atkinson says he likes the company’s solid base of premium indoor flower production in Canada along with its branching out into Europe where the company expects to receive EU-GMP certification for its Canadian operations in Q2 of 2020 and being shipping product immediately thereafter.

“VIVO Cannabis is probably the most differentiated small LP in Canada,” Atkinson wrote in his coverage initiation report to clients. “Its two Canadian units – ABcann and Canna Farms – were two of the first Licensed Producers in this country. Meanwhile, VIVO is poised to launch cannabis sales in Europe via the pharmacy channel, and its executive team just happens to have decades of collective experience in selling pharmaceuticals in Europe.”

“Between a string of new cannabis 2.0 products for the rapidly-growing Canadian adult-use market (including some of the first premium concentrates offered in the country) and a medical cannabis import/distribution unit launching in Europe this year, we expect VIVO to have one of the highest revenue growth rates of any Canadian cannabis LP over our forecast period,” Atkinson wrote.

One differentiator, according to the analyst, is that Vivo is one of just six Canadian LS to have multiple licensed sites possessing all available sales licenses, and moreover, Vivo has by far the lowest basic market cap of that group. (The others are Canopy Growth, Aurora Cannabis, Tilray, Aphria and WeedMD.)

Atkinson says that 2020 should be a transformative year for Vivo, with the analyst forecasting 5,475 kg of Canadian market shipments, representing a 90 per cent uptick over 2019, and then shipments of 9,650 kg in 2021.

The analyst thinks VIVO will generate fiscal 2020 revenue of $47.2 million and an adjusted EBITDA loss of $2.6 million and fiscal 2021 revenue of $94.6 million and adjusted EBITDA of $14.7 million.

Vivo finished 2019 down 71 per cent to $0.205 per share but is currently up 78 per cent for 2020.