Willow Biosciences (Willow Biosciences Stock Quote, Chart, News TSX:WLLW) could be the first to get a viable synthetic cannabinoid business up and running, giving it a huge edge, says David Kideckel, analyst for AltaCorp Capital.
Kideckel issued an update to clients on Willow on Wednesday where he reaffirmed his “Speculative Buy” rating and one-year target of $2.75 per share.
Calgary-based biotech company Willow Biosciences is developing plant-derived but synthetically produced cannabinoids for use in the pharmaceutical, wellness and CPG industries.
On Thursday, the company released an update outlining recent developments, including the moving up of its timeline for cannabidiol (CBD) production and the development of processes to synthetically generate four new cannabinoids.
“Our pilot project production samples expected to be available in Q3 of 2020 will make Willow the first to biosynthetically produce material amounts of cannabinoids,” said CEO Trevor Peters, in a press release. “We expect to offer a portfolio of ultra-pure, pharmaceutical grade quality cannabinoids by the end of 2021.”
“As we transition from a research-focused company to a production company, we are investigating a variety of end markets, including pharmaceutical and consumer products. We see significant potential in consumer packaged goods for the North American recreation market, where interest for high quality ingredients such as ours is strong,” Peters wrote.
Kideckel says the investment thesis on WLLW relies on the disruptive potential of biosynthetic cannabinoids, while his bullish view on the stock comes from the company’s early mover advantage along with its strong management team which has both technical expertise and business experience.
“We believe that pharmaceutical and CPG companies may prefer biosynthetic cannabinoids, given their advantages related to reliability, consistency, and cost. We view Willow to be among the first early movers as well as best-in-class in a nascent industry, which has disruptive potential,” Kideckel wrote.
Kideckel offered three reasons for investors to be buying WLLW. First, the potential market for synthetic cannabinoids is large and the visibility of Willow’s path to commercialization is improving. Second, given the progress in Willow’s research and its growing proprietary genomic database, the company is a potential acquisition target for companies looking to develop cannabinoids through biosynthesis. Thirdly, the analyst said WLLW is currently trading at “an extremely attractive valuation,” where he figures the stock is trading at an EV/Sales for 2022 of about 0.5x.
On the newly announced cannabinoids added to Willow’s pipeline (CBG, CBGV, CBDV and THCV, in addition to CBD), Kideckel said, “We view this addition as highly positive for Willow, given their potential to increase the Company’s addressable market size significantly due to their various potential applications.”
At the time of publication, the analyst’s $2.75 target represented a projected 12-month return of 787 per cent.
Willow last reported its finances in May with its first quarter 2020 results. For the quarter, WLLW’s cash burn was $3.5 million and its cash balance as of the end of March was $16 million.