Auxly Cannabis is a buy, Mackie Research says

Micro-cap name Auxly Cannabis (Auxly Cannabis Stock Quote, Chart, News TSXV:XLY) continues to impress with its Cannabis 2.0 products, says Mackie Research analyst Greg McLeish, who updated clients in a Wednesday report in which he maintained his “Buy” rating with the new target price of $0.50 per share.

Auxly is a cannabis CPG company with products in the medical, wellness and recreational markets and boasts a strategic partnership with UK tobacco company Imperial Brands. Announced last July, the partnership involves a $123-million investment from Imperial and gives Auxly the global licenses to Imperial’s vaping technology.

Auxly’s share price shot up to as high as $1.05 by August of last year but the stock has been mostly declining in value since, spending the past three months in the $0.30 to $0.40 range.

Auxly was one of the first companies in Canada to distribute and sell derivative products once they were legalized this past year, with the company currently offering vapes, chewables and chocolates under the Kolab Project and Foray brands.

In his update, McLeish reviewed the recent news from Auxly, including its receipt of a sales license for its premium craft brand, Robinsons, announced on May 20, with the company set to make this “artisan, hand-crafted cannabis flower” line available in select locations by this summer. McLeish said the new license expands Auxly’s product portfolio.

Then, on the company’s first quarter 2020 financials, delivered on June 1, McLeish said the numbers showed strong sales results in BC, Alberta and Ontario. Auxly’s revenues grew by over 1,100 per cent to $9.9 million, primarily due to the sale of derivatives, which started in the Q1 and make up more than 80 per cent of the company’s sales.

“Auxly’s products are now widely available at retailers across the country,” wrote McLeish. “We believe that Auxly’s assets and capabilities, in particular the powerful combination of Dosecann and KGK, make them uniquely positioned to become a market leader for Cannabis 2.0 products.”

“Auxly’s strategic partnership with Imperial Brands will further advance the company’s capabilities in relation to Cannabis 2.0 products. Under the partnership, Imperial Brands has granted Auxly global vape IP licences for cannabis use. Imperial Brands’ subsidiary, Nerudia, has a growing scientific team dedicated to cannabis research and a facility licenced for R&D activities with cannabis,” he wrote.

“In addition to its vape IP and R&D, Auxly is leveraging Imperial Brands’ expertise to spur new product development and global expansion, including: commercial expansion into new jurisdictions where Imperial Brands’ sales and distribution reach is strongest; global brand building in highly regulated markets; consumer insights and intelligence capabilities; product commercialization expertise; and scalable operational excellence and supply chain management,” McLeish wrote.

Looking forward, McLeish thinks XLY will generate fiscal 2020 revenue and EBITDA of $51.1 million and negative $31.3 million, respectively, and fiscal 2021 revenue and EBITDA of $108.1 million and $15.5 million, respectively.

McLeish’s price target of $0.50 comes from applying a 10x EV/EBITDA multiple to his 2022 estimates and at press time represented a projected one-year return of 61.3 per cent.