Columbia Care has a bright future, PI Financial says

There’s a brighter path ahead for US cannabis company Columbia Care (Columbia Care Stock Quote, Chart, News NEO:CCHW), according to PI Financial analyst Jason Zandberg, who in an update to clients on Monday reviewed Columbia Care’s latest quarterly results.

The analyst kept his “Buy” rating but dropped his target price from C$11.00 to C$10.50, saying the company is well-positioned to take advantage of expected adult-use markets in a number of US states.

New York-based Columbia Care, a multi-state operator with licenses in 18 jurisdictions in the US and the EU with a focus on health and wellness products and intellectual property, announced on Tuesday its fourth quarter and full-year 2019 financials. The company posted net revenue of $23.2 million, up 111 per cent year-over-year and up five per cent compared to the previous quarter. Adjusted revenue, which would include CannAscend’s operations, was up 123 per cent year-over-year to $24.5 million. (All figures in US dollars unless where noted otherwise.)

CEO Nicholas Vita said that Columbia Care remains on track to complete the acquisition of Colorado-based The Green Solution sometime over the first half of this calendar year.

“Since we went public last April, our team has doubled the number of markets in which we operate, opened more dispensaries in one year than we had in the previous seven combined, and most importantly, provided access to our portfolio of proprietary, precision dosed, high-quality cannabis-based medicines to a record number of patients and guests,” said Nicholas Vita, CEO, in a press release.

“Now that we have completed our 2019 capital program, we can leverage our fixed assets to drive profitability in each market and on a consolidated basis. Investors should expect the pace of activity to increase as we execute against our unrelenting desire to make Columbia Care the best-in-class and most-trusted global cannabis provider,” Vita said.

From his perspective, Zandberg said the Q4 revenue came in under his and the consensus estimate of $27.5 million, with the slight difference due to regulatory delays in getting all of its licensed dispensaries approved and open. The analyst noted that top line growth came primarily from the company’s dispensary network, growth in the company’s Pennsylvania operations and increased product demand in Massachusetts — over the quarter, the company’s Lowell, MA, store generated a 34-per-cent EBITDA margin and $4,236 annualized revenue per sq ft.

Closing The Green Solution acquisition will be a big deal for CCHW, said Zandberg.

“We believe that the acquisition of TGS will be accretive to Columbia Care due to strong historical performance – $78 million in revenue in FY19 and currently the market leader in CO with the infrastructure to expand market share. TGS has a suite of established adult-use brands which integrates well with Columbia Care operations in markets that are expected to convert into adult-use (NY, NJ, and PA),” Zandberg said.

Columbia Care management provided guidance for fiscal 2020 and Zandberg has in turn revised his estimates, now calling for 2020 revenue and EBITDA of $226.3 million and negative $13.7 million, respectively. The analyst’s new C$10.50 target represented at press time a projected 12-month return of 251 per cent.

“It is important to point out that our estimates do not include the potential upside of NJ and NY converting to adult-use markets. Both of these states are expected to convert soon but timing is uncertain. We believe NJ and NY could potentially be the most lucrative adult-use markets in the US and we believe that with the TGS product offering, CCHW is the MSO in the best position to capitalize on this potential catalyst,” said Zandberg.