Cansortium has turned a corner, says Paradigm Capital

Positive EBITDA in its latest quarterly results are a sign of things to come for US cannabis name Cansortium (Cansortium Stock Quote, Chart, News CSE:TIUM.U), says Paradigm Capital analyst Corey Hammill, who reviewed the quarter in an update to clients on Wednesday.

Miami, Florida-headquartered Cansortium is a medical cannabis company with vertically integrated cultivation, processing, formulation and sales through its patient platform, with operations based in Florida’s medical market but also with interests in Texas, Michigan and Pennsylvania.

The company released its first quarter ended March 31, 2020, results on Tuesday, featuring revenue up 84 per cent year-over-year to $10.2 million and adjusted EBITDA of $0.7 million compared to a year-ago loss of $3.4 million. (All figures in US dollars except where indicated otherwise.)

Cansortium opened its 19th dispensary in Florida during the quarter, up from nine stores a year earlier, while in April of this year it opened its 20th.

With the release, management reiterated its full-year 2020 outlook for consolidated revenues in the range of $55 million to $60 million and adjusted EBITDA of more than $15 million.

Last year, Cansortium sold off its non-core assets in Canada and Puerto Rico in a move to free up capital and reduce operating costs. The company said the Q1 results and outlook reflect management’s confidence in its operational and financial restructuring plan initiated last year.

“We are committed to carefully focusing our capital and other resources on the most promising, actionable US medical marijuana markets to grow revenues, while managing expenses to drive profitability,” said executive chairman Neal Hochberg in a press release.

“In Florida, despite the unprecedented challenges presented by the ongoing global COVID-19 pandemic, we are strengthening the Fluent brand's competitive position by serving Florida's growing medical marijuana patient population as a designated essential service. Together with additional opportunities in Michigan, Pennsylvania and Texas, we are positioned to make meaningful progress in 2020 toward enhanced cash flow and profitability,” he said.

In his update, Hammill wrote that TIUM looks poised to reverse its recent underperformance relative to its Florida-focused peer group and become a truly differentiated, multi-state operator.

“Despite its improving fundamentals and upbeat outlook, Cansortium continues to underperform relative to its Florida peers, down 28 per cent year-to-date versus the price-weighted group average of down 3 per cent. Cansortium remains one of the least expensive names in our MSO tracking basket, trading at 2.5x consensus 2020e sales, versus MSO peers trading at an average of 4.0x,” Hammill wrote.

With the update, the analyst maintained his “Buy” rating and C$1.25 target for TIUM, which is based on 3x his 2021 sales estimate and 15x EBITDA and at press time represented a projected one-year return of 317 per cent.

Hammill noted that TIUM ended the Q1 with $4.8 million in cash and about $63.4 million in net debt. Looking ahead, the analyst is now projecting 2020 revenue and EBITDA of $59.0 million (unchanged) and $16.8 million (up from $11.7 million), respectively, and 2021 revenue and EBITDA of $94.1 million (unchanged) and $28.3 million (unchanged), respectively.