Columbia Care keeps “Outperform” rating at ATB Capital

ATB Capital Markets analyst Kenric S. Tyghe issued a flash update to clients on Thursday, saying he likes the look of a new acquisition by US-based cannabis company Columbia Care (Columbia Care Stock Quote, Chart, News, Analysts CSE:CCHW).

In the report, the analyst kept his “Outperform” rating on the stock and one-year target of C$8.00.

New York-headquartered Columbia Care is a cultivator, processor and distributor of medical and adult-use cannabis products to consumers across 18 jurisdictions in the US and one in Europe. Established in 2012, the company currently operates 108 facilities including 81 dispensaries and 27 cultivation and manufacturing facilities and has brands including Seed & Strain, Amber and Platinum Label CBD. Columbia Care announced on Thursday it has acquired San Diego dispensary The Healing Center San Diego (THCSD), one of the leading dispensaries in Southern California, for about $15.0 million.

The deal consists of $3.0 million in cash, $6.0 million in stock and $6.0 million in seller promissory notes. The company said acquiring THCSD will enhance its retail presence and scale in California and further leverage the capabilities of its Balboa facility and recent acquisition Project Cannabis. CCHW now has three dispensaries and one indoor cultivation facility in Los Angeles, two stores and one GMP-quality manufacturing facility in San Diego, outdoor cultivation capacity in Desert Hot Springs and one dispensary in San Francisco. (All figures in US dollars except where noted otherwise.)

“Being a leader in California enables us to continue building brand equity and awareness across our product portfolio and solidify consumer loyalty and trust, which are the cornerstones of our success,” said Nicholas Vita, CEO of Columbia Care, in a press release. “THCSD has been a cannabis bellwether since its founding and has built a business with a loyal customer base. We are thrilled they have entrusted us to accelerate the excellence THCSD is known for.”

Commenting on the acquisition, Tyghe said THCSD is expected to generate 2021 revenue of about $12.5 million and EBITDA of about $3.2 million for margins of about 25.6 per cent and that the deal is expected to be accretive to Columbia Care’s California operations’ adjusted EBITDA and free cash flow.

“We consider the acquisition of THCSD to be positive to our thesis given: (i) it serves as a nice complement to the Company’s California operations, especially in Southern California, where it now operates five active dispensaries; (ii) attractive transaction multiples with obvious further synergy opportunities; and (iii) THSCD’s attractive existing margin profile and brand positioning,” Tyghe wrote.

Tyghe is calling for CCHW to generate 2020 revenue and adjusted EBITDA of $200.6 million and negative $2.2 million, respectively, and 2021 revenue and adjusted EBITDA of $452.2 million and $88.4 million, respectively.

Columbia Care’s share price has shot up in recent weeks, climbing from $6.00 on December 22 to $8.26 as of Wednesday’s close. For 2020, CCHW returned 135 per cent.

At the time of publication, Tyghe’s C$8.00 price target represented a 12-month return of negative 4.0 per cent.

In December, Columbia Care signed a definitive agreement to acquire Green Leaf Medical, a fully-integrated multi-state operator based in the mid-Atlantic region for about $240 million with the potential for additional performance-based milestone payments.

CCHW said the acquisition will make it one of the largest and most efficient operators in Pennsylvania, Maryland, Ohio and Virginia, with the deal expected to close in the summer of 2021.

“This combination affirms Columbia Care’s position as one of the largest cultivators, manufacturers and retailers in four key states – PA, VA, OH and MD – three of which are expected to convert from medical to adult use in the next 24 months,” said Vita in a press release. “Green Leaf complements our retail footprint and brings wholesale leadership through which we can drive our portfolio of brands and unique products. The transaction is immediately accretive to gross margin, Adjusted EBITDA and Cash Flow from
Operations.”

The deal followed on the closure on December 2 of Columbia Care’s closure on the acquisition of LA-based cultivator, wholesaler and retailer Project Cannabis for $69.0 million, $52.5 million in stock and $16.5 million to be paid from the proceeds of a subsequent sale of Project Cannabis’ real estate assets. Columbia Care said adding Project Cannabis’ premium and exotic strains, nationally recognized brand portfolio and extensive distribution network will boost the company’s business in California.

Columbia Care last reported its earnings in mid-November where its third quarter 2020 results featured revenue up 64 per cent quarter-on-quarter and up 145 per cent year-over-year to $54 million and adjusted EBITDA of $4.2 million, up from negative $11.8 million a year earlier. The Q3 numbers reflected one month of contribution from The Green Solution in Colorado, an acquisition closed by Columbia Care on September 1, 2020.