Cardiol Therapeutics gets target raise at Raymond James on Shoppers Drug Mart deal

With all the bad news in the cannabis sector and the market in general, there’s a ray of sunshine for Cardiol Therapeutics (Cardiol Therapeutics Stock Quote, Chart, News TSX:CRDL) shareholders in a new CBD deal with Shoppers Drug Mart, according to Raymond James analyst Rahul Sarugaser.

In a client update Wednesday, the analyst upped his target price for Cardiol on the back of the event.

Oakville, Ontario-based Cardiol is a pharmaceutical-grade cannabidiol (CBD) products company whose lead product CardiolRx is being billed as the most consistent CBD formulation on the market. Aside from its current commercializing efforts regarding CardiolRx, the company also has a clinical wing which is planning to put the compound into Phase 1 trials for acute myocarditis.

Cardiol on Wednesday announced the signing of a supplier agreement with Shoppers, Canada’s largest pharmacy chain, with the latter becoming the exclusive retailer of CardiolRx products in Canada. Cardiol’s exclusive manufacturing and formulation partner, Dalton Pharma Services, will supply Shoppers with finished products, including initially 100 mg, 50 mg and 25 mg dosages.

“Shoppers Drug Mart is a trusted brand in Canada and we are delighted that Medical Cannabis by Shoppers has agreed to carry Cardiol's pharmaceutical cannabidiol on an exclusive basis,” said David Elsley, President and CEO of Cardiol in a press release.

“The signing of this important distribution agreement has now positioned our Company to meet the growing demand for medical cannabidiol products that are free from the psychotropic effects of THC, while setting the highest industry standards for purity, stability, safety, and consistency for patients and healthcare providers.”

In his update, Sarugaser said the deal means that CardiolRx products, which are manufactured under pharmaceutical cGMP quality standards, are now the only CBD product available to Canadians that are truly THC-free. The analyst said that while the supply agreement is great for Cardiol, it was in many ways expected and already baked into the stock.

“Our original valuation gave CRDL a 75-per-cent probability of striking a deal with a distributor of CardiolRx. With this deal executed, we give the company full credit for potential future cash flows generated by sales of CardiolRx, which we've modeled with very conservative assumptions. Given this deal did take longer than we had expected, however, we have adjusted our assumptions for near-term revenues, pushing them out by one quarter,” Sarugaser wrote.

“We applaud CRDL for executing this Shoppers supply agreement but acknowledge that shareholders saw it as a long time coming. We look forward to tracking CardiolRx sales traction in the coming months, particularly among paediatric neurologists and geriatricians,” said Sarugaser.

The analyst also noted the announcement from earlier this month whereby Health Canada had given the go-ahead for Cardiol’s Phase 1 clinical trial in acute myocarditis, first evaluating safety and pharmacokinetics in healthy patients. Sarugaser wrote, “While commercial sales through Shoppers is critical to CRDL's capacity to generate near-term cash flow, we see the company's gold standard clinical trials as its crown jewel.”

Sarugaser is now calling for fiscal 2020 revenue of $1 million (previously $2 million) and EBITDA of negative $15 million (previously $14 million).

With the update, reasserted his “Outperform 2” rating and lifted his target from $5.00 to $6.00, representing at press time a projected 12-month return of 181.7 per cent.