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Columbia Care still trading at a discount to cannabis peers, Beacon says

Columbia Care

Beacon Securities analyst Russell Stanley believes Columbia Care (Columbia Care Stock Quote, Chart, News, Analysts, Financials CSE:CCHW) is about to blossom, reiterating his “Buy” rating and target price of C$12.00/share in an update to clients on September 10.

Founded in 2012 with its headquarters in New York City, Columbia Care is an established multi-state cannabis operation in the United States with interests in 18 jurisdictions representing an aggregate population of 175 million.

Stanley’s latest analysis comes after the state of Virginia, where Columbia Care has dispensaries in Portsmouth and Richmond, officially allowed sales of whole flower products for medical use in the state beginning September 10.

“Regulatory changes allowing for the sale of flower were enacted earlier this year, so the actual launch has been eagerly anticipated,” said Stanley, who views the development positively for CCHW. “Through the acquisition of gLeaf in June, CCHW obtained a second of just four active licenses to serve Virginia’s medical market. As flower often represents about 50 per cent of sales in markets that allow it, we expect the launch of flower to accelerate growth in this state.”

Columbia Care’s profile in the state was heightened after it officially closed the acquisition of Green Leaf Medical (gLeaf brand) in June, which added to its presence throughout the mid-Atlantic region of the United States. The $240 million acquisition price tag, including $45 million in cash and $195 million in stock with additional potential payouts, helped vertically integrate the company in Pennsylvania and maxed out its allowable footprint in Ohio on top of the second Virginia license. (All figures in US dollars unless otherwise noted)

The company is selling its whole flower products under the Seed & Strain and gLeaf brands in Virginia, and they will also be available via home delivery and third party retailers throughout the state. Stanley projects the state will legalize adult-use cannabis sales in 2024, though he also notes there are ongoing efforts to push the opening forward into 2023, given that adult-use possession became legal in July.

“We are grateful to the Commonwealth of Virginia and the Board of Pharmacy for the opportunity to provide this critical medicine to patients in a form they’ve been asking for and in brands they can trust. The team has been working diligently in preparation for this day and we are thrilled to bring whole flower to our patients,” said Columbia Care CEO Nicholas Vita in the company’s September 9 press release. “As Virginia rapidly expands the medical program and legislators discuss the timing of adult-use sales, we are well positioned with increased canopy and inventory to continue providing high quality medicine for patients while preparing for future adult-use sales.”

Columbia Care has been busy over the last three months, beginning with the acquisition of CannAscend, which owns four dispensaries in Ohio, followed by officially launching its operations in West Virginia, commencing adult-use cannabis sales in its downtown Boston dispensary, opening a new dispensary in Deptford, N.J., approximately 15 miles from Philadelphia, and rebranding its Florida operations under the Cannabist name.  

The company announced its second quarter financial results in August, headlined by revenue of $109.7 million for 19 per cent sequential growth and a 232 per cent year-over-year increase. Gross profit came in at $47.7 million to produce a 43 per cent margin, while also representing 26 per cent sequential growth and a 300 per cent year-over-year increase.

Meanwhile, adjusted EBITDA was positive to the tune of $16.4 million and a 15 per cent margin, representing a 58 per cent sequential increase and a jump of $21.1 million on a year-over-year basis.

Stanley projects a spike in the company’s financial metrics over the next two fiscal years, projecting revenue to jump to $520 million in 2021 for a potential year-over-year increase of 163 per cent, with a further projection of $908 million in revenue in play for 2022, producing a potential year-over-year increase of 74.6 per cent. 

He also projects a positive annual adjusted EBITDA beginning in 2021 at $95 million for a margin of 18.3 per cent, with a significant spike to a projected $297 million in 2022, good for a potential margin of 32.7 per cent.

Stanley’s valuation data also comes into clearer focus, with the EV/IFRS revenue multiple forecast to drop to 3.8x in 2021 from the previous mark of 10.7x in 2020, followed by a further drop to 2.1x in play for 2022. Meanwhile, with positive adjusted EBITDA projected, Stanley forecasts the EV/EBITDA multiple to be 20.1x in 2021, falling to 6.4x in 2022.

“CCHW now trades at 6.4x our F2022 EBITDA forecast. This represents a 37 per cent discount to the 10.2x average amongst US operators. Potential catalysts include closing of the Medicine Man acquisition in Colorado (see our June 16th note), further M&A (we estimate Columbia Care has $65M in dry powder), and the Q3 results in November. As discussed in our August 13th note covering the Q2 results, Q3 will feature the first full quarter contribution from the gLeaf transaction. In combination with organic growth, the stage is set for CCHW to report strong q/q revenue/EBITDA/margin improvement,” Stanley wrote.

Overall, Columbia’s stock price has dropped by 36.9 per cent over the course of the year, peaking at a high point of US$7.65/share on February 10. At the time of publication, Stanley’s C$12.00 target price represented a potential one-year return of 145 per cent.


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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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