Beacon Securities analyst Doug Cooper continues to hold a positive outlook on VIBE Growth Corp. (Vibe Growth Stock Quote, Chart, News, Analysts, Financials CSE:VIBE), maintaining his Buy rating and target price of $2.60/share, implying a potential return of 364 per cent at the time of publication.
A vertically-integrated cannabis organization featuring retail dispensaries, cannabis greenhouse cultivation, premium indoor cultivation, commercial distribution and transportation, e-commerce and home delivery, and the manufacturing of Hype Cannabis Co. marijuana products, Vibe is set to take a significant step forward in its California operations thanks to a new land purchase agreement with Monterey County.
“We believe this announcement is very significant in that it dramatically accelerates Vibe’s vertical integration strategy in California,” Cooper said. “Such a strategy is a tried-and-true method to increase gross margins at retail stores. From a high level, Vibe has 6 retail stores in the state and with Phase 1 in Monterey, it will have about 100,000 square feet of cultivation (greenhouse and indoor), which should produce about 30,000 lbs of flower.”
The agreement, which comes at a cost of $5.1 million, sees Vibe Growth acquiring 10 acres of properly zoned agricultural land in Monterey County, upon which the company will build a 255,000-square foot greenhouse, with the first phase set to be 66,000 square feet.
This deal could prove to be a pivotal moment in the company’s growth, according to Vibe executives.
“Vibe continues to deploy capital prudently in the highest growth and margin areas of the California cannabis market. Our strategy in California has been focused on vertical integration, cultivation, and retail sales. The Monterey greenhouse acquisition allows us to scale and grow our cultivation and production, meet the demand for our branded products, and grow margins significantly,” stated Mark Waldron, CEO of Vibe Growth Corporation in a July 21 press release.
Overall, the company appears to be on a steady growth path, with Beacon Securities projecting Vibe’s 2021 revenue to hit $36.6 million (lowered from the original projection of $41.1 million), a jump from 2020’s year-end figure of $24.2 million, with 2022 revenues forecast to reach $55.4 million (raised from the initial $50.4 million estimate).
Vibe Growth’s adjusted EBITDA is forecast to be on a more upward trajectory, with the 2021 projection of $6.1 million representing a 134.6 per cent rise over 2020’s reported $2.6 million, with 2022 forecast to hit $17.3 million.
Valuation ratios, by contrast, are forecast to go down, with Beacon Securities projecting the EV/Sales forecast to drop from 1.2x in 2020 to 0.9x in 2021, then again to 0.6x in 2022. The EV/EBITDA ratio is forecast to go through a more significant drop, falling from the reported 11.3x in 2020 to a projected 5.4x in 2021, then again to 1.9x in 2022.
The price-earnings ratio multiple is also forecast to take a dip, falling from the reported 43.5x in 2020 to 25.3x in 2021 before falling even further, resulting in a projected 4.6x in 2022.
From a liquid cash perspective, Vibe is in a solid position with $13.4 million on hand, with the company expecting to use debt capital to finance construction of the Phase 1 greenhouses.
In addition to its work in California, which also includes closing on a dispensary in Palm Springs in May, Vibe has also made inroads into Massachusetts, receiving Phase 2 approval to build a new cannabis cultivation facility in Springfield through one of its entities, Page Cultivate LLC, with Beacon Securities suggesting Vibe may pursue a joint venture.
“Our entry into Massachusetts marks a new catalyst driver for Vibe’s growth strategy. While our focus to date has been the California cannabis market, we have stated that we would remain opportunistic with respect to Vibe’s expansion,” Waldron said on May 14. “Expanding our cannabis operations to the East Coast enables Vibe to rapidly build scale in an important, vibrant, and maturing adult-use market. We look forward to introducing our own best-in-class Vibe By California and Hype Cannabis Co. brands to the Massachusetts market.”
Vibe Growth Corp. closed today up 9.8 per cent to $0.56.
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