Willow Biosciences has a huge upside, says ATB Capital

Kideckel delivered an update to clients August 29 where he reiterated his “Speculative Buy” rating and $2.75 target price, which at press time represented a projected 12-month return of 473 per cent.

Shares of Willow Biosciences shot up last Wednesday as the company announced the start of a pilot project to produce its first rare cannabinoid, cannabigerol (CBG) in the third quarter 2020. The company said CBG, a non-psychoactive cannabinoid, has a range of bioactive properties including anti-microbial and antioxidant functions, and while CBG can’t be produced in appreciable quantities in the plant, Willow’s synthetic process using a proprietary yeast strain should be able to produce commercial quantities.

“This pilot is ahead of schedule in part due to our industry-leading science team, but also due to strong demand from major global consumer packaged goods entities. In our discussions with companies manufacturing consumer products with cannabinoids as ingredients, it is clear that there is significant demand for ultra-pure, pharmaceutical grade cannabinoids,” said Willow’s CEO Trevor Peters in a press release.

In his update, Kideckel called the event a positive for the company and stock as it represented another step towards commercialization, with the analyst adding that his current valuation only includes potential opportunities related to CBD, meaning any impact from CBG would be a significant upside to his estimates.

Kideckel said Willow is currently in active discussions with several Fortune 500 consumer packaged goods companies on commercializing its biosynthetically-produced cannabinoids and that the company has so far come a long way in improving the visibility of its path to commercialization.

“We remain conservative and factor sales to commence in H2/21e by targeting the wellness category. Gradually, Willow intends to target cosmetic, food & beverage, and pharmaceutical categories. We believe the CPG and pharmaceutical segments will provide a boost to Willow’s revenue-generating potential, given the advantages related to biosynthesis and the therapeutic benefits of cannabinoids,” the analyst wrote.

Kideckel gave three “strong reasons” to be buying Willow now: (1) the large potential in cannabinoid commercialization combined with Willow’s clearer path to that end; (2) Willow is a potential take-out target; and (3) the analyst sees WLLW to be trading “at an extremely attractive valuation.

On the acquisition potential, Kideckel wrote, “We view Willow to be a potential acquisition target for companies looking to develop cannabinoids through biosynthesis, given Willow’s scientific progress to date, its management’s expertise and its strong intellectual property with multiple patent applications covering more than 200 novel genes to increase cannabinoid production.”

“Most of Willow’s discovered genes are produced by the Company’s proprietary genomic databases, which in our view, may lead to multiple additional discoveries and patents in 2020 and beyond, increasing the value of Willow’s intellectual property. Alternatively, we view a CPG or pharmaceutical company to be a potential acquirer should they wish to bring Willow’s expertise in-house,” Kideckel said.