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Indiva is dominating cannabis edibles market, says Raymond James

Raymond James analyst Rahul Sarugaser has a good feeling about Indiva (Indiva Limited Stock Quote, Chart, News, Analysts, Financials TSXV:NDVA), initiating coverage with a “Strong Buy 1” rating and target price of $1.75/share for a projected return of 317 per cent in a September 7 update to clients.

Headquartered in London, Ont., Indiva is a licensed producer and distributor of medical cannabis products made of psychoactive drug flowers and oil extracts within the Canadian cannabis market.

“NDVA’s headline is pretty straightforward: Through its marquee license agreements with popular U.S. brands (Wana, Bhang), NDVA is dominating the Canadian edibles market,” Sarugaser said.

Sarugaser believes Indiva, which has a market cap of $50 million, to be a textbook merger or acquisition target for other companies, referencing the $435 million acquisition of Supreme Cannabis, which had a smaller market share than Indiva, by Canopy Growth in April. Sarugaser identifies Olds, Alta.-based Sundial Growers as an early actor on the company’s value, investing $22 million in the company in exchange for an 18.5 per cent equity stake.

Through its licensing agreements with Wana Sour Gummies and Bhang Chocolate edibles, Indiva occupies seven of the top eight spots among edibles sold in Ontario, which accounts for 45 per cent of all edible sales in Canada, with a further investment into the market coming through the release of Slow Ride Bakery cookies through a partnership with the Ottawa-based private company. 

Indiva recently reported its second quarter financial results, headlined by $9.1 million in net revenue for the quarter, marking a a 255 per cent year-over-year increase, and a 46 per cent sequential increase from the previous quarter, which the company notes was driven primarily by increased sales of the Wana and Bhang lines.

“Becoming a top ten ranked LP nationally by dollar share and top three measured by units, and doing so by driving organic growth rather than through acquisition, is a testament to the talent, dedication and hard work of the entire Indiva team,” said Niel Marotta, President and Chief Executive Officer of Indiva in the company’s August 24 release.

“Looking forward to the second half of 2021, we expect to see continued revenue growth driven by new product introductions, including multi-pack Wana gummies and cookies from Slow Ride Bakery, marking Indiva’s first introduction of baked goods into the market. We also expect to see continued margin expansion throughout 2021, driven by lower distillate costs and continued improvement in operating efficiencies. Indiva is hitting its stride, and we intend to continue to drive profitable organic growth by delivering best-in-class cannabis products to of-age Canadians,” Marotta said.

Predicated on the notion of Indiva capturing 20 per cent of the Canadian edibles market, Sarugaser’s financial metrics for Indiva show a company poised to continue growing, with a projection of $34.5 million in net revenue for 2021 coming in at a 134.7 per cent year-over-year increase over the 2020 reported figure of $14.7 million, followed by a projected 43.8 per cent year-over-year increase to $49.6 million. From there, Sarugaser foresees net revenue more than doubling by 2025, where he projects net revenue of $117.8 million, along with the company possessing three per cent of the Canadian adult-use cannabis market share.

2022 is also the first year where Sarugaser projects a positive EBITDA for the company, with a forecast of $3.2 million and 6.5 per cent margin coming in well ahead of the projected $1.4 million EBITDA loss for 2021. Sarugaser sees the EBITDA margin continuing to climb through 2025, projecting $7.1 million in EBITDA and 10.6 per cent margin for 2023, $11.4 million and 11.8 per cent margin projected for 2024, and $17.7 million with 13.8 per cent margin projected for 2025.

Sarugaser has Indiva’s EV/Revenue multiple forecasted to drop from the reported 4.5x in 2020 to 1.9x in 2021, then again to 1.3x in 2022. Meanwhile, with positive EBITDA projections in place beginning in 2022, Sarugaser projects an initial dip from -8.2x in 2020 to -45.8x in 2021, then rebounding to 20.9x in 2022.

Going forward, Sarugaser foresees Indiva maintaining its hold on the Canadian edibles market as the market itself grows to a similar share as what’s seen in the United States, then penetrating deeper into existing markets while adding new ones, singling out Quebec as a potential target if it opens for business.

“Benefiting from our conversations with NDVA management, our visits to NDVA’s manufacturing facilities in London, and our study of NDVA’s sales and operating results quarter after quarter, we conclude that NDVA is a top-shelf operator that consistently produces high-quality, fast-selling products that Canadian consumers seem to love,” Sarugaser said.

Overall, Indiva’s stock price is up 75.9 per cent for the year to date, reaching a high point of $0.68/share on February 16 on the TSX Venture Exchange.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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