Beacon Securities raises target on Columbia Care to $7.00

After closing on a Colorado acquisition, Beacon Securities analyst Russell Stanley is bumping up his target price on Columbia Care (Columbia Care Stock Quote, Chart, News CSE:CCHW), saying the market in the mature cannabis state continues to grow.

Stanley delivered an update to clients on Tuesday where he reaffirmed his “Buy” rating and moved his target from C$5.50 to C$7.00 per share, which at press time represented a projected 12-month return of 34 per cent.

Headquartered in New York City, Columbia Care is a multi-state operator currently with licenses in 18 US jurisdictions and the EU. The company operates 73 dispensaries and 22 cultivation and manufacturing facilities and has the brands Amber and Platinum Label CBD.

Columbia Care on Tuesday announced the completion of its acquisition of The Green Solution, the largest vertically-integrated cannabis company in Colorado. The $140-million deal includes $110 million in stock (priced at C$4.35 per share), $15 million in debt issued at the signing last November and a $15-million seller’s note that may be reduced to $7-$9 million based on closing adjustments. (All figures in US dollars except where noted otherwise.)

As Columbia Care detailed in the press release, The Green Solution has 23 dispensaries and six cultivation and manufacturing facilities expected to generate about $88.5 million in revenue and $18.5 million in adjusted EBITDA in fiscal 2020. With the press release, Columbia reiterated its 2020 pro forma combined revenue guidance of between $234 and $265 million and its call for adjusted EBITDA profitability by Q3 2020.

Responding to the news, Stanley described the Colorado cannabis market -the second largest market in the US— as continuing to grow despite being around for longer than most. The analyst said legal market sales approached $200 million in June 2020, which with a population of 5.8 million represents per capita spending of $408 per year per person. Stanley said legal market sales improved by 31 per cent year-over-year in June, with adult-use sales growth of 29 per cent to $158 million and medical sales growth of 37
per cent to $41 million. The analyst said should these trends continue, Colorado is on pace to deliver legal cannabis sales of $2.1 billion in 2020, which would be up 20 per cent on 2019.

Overall, Stanley said CCHW is now trading at a nine per cent discount to its broader peer group.

“Columbia Care trades at 12.4x our revised F2021 EBITDA forecast. This represents a one-per-cent discount to the 12.5x average among US-focused cannabis companies and a nine-per-cent discount to the 13.7x average for the broad peer group average,” the analyst said.

“Potential catalysts include additional buildout updates (particularly in New Jersey and Virginia), M&A activity and the Q3/20 results in November. The stock is now back on trend with strong momentum,” Stanley added.

The analyst is calling for Columbia Care to generate combined revenue and adjusted EBITDA in fiscal 2020 of $208 million and negative $6 million, respectively, and revenue and EBITDA in fiscal 2021 of $443 million and $104 million, respectively.