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Target cut but still lost of upside to Columbia Care, says Paradigm

Corey Hammill of Paradigm Capital Markets is being more cautious about Columbia Care (Columbia Care Stock Quote, Chart, News, Analysts, Financials CSE:CCHW), maintaining a “Buy” rating while lowering his target price from C$12.50/share to C$11.50/share in an update to clients on Monday.

Founded in 2002 and headquartered in New York City, Columbia Care cultivates, manufactures and provides cannabis-based health and wellness solutions and derivative products with licenses in nearly 20 jurisdictions within the U.S. and the European Union.

Hammill has lowered his target despite Columbia Care posting what the analyst called strong third quarter financial results, though the results were still a bit off from analysts’ expectations.

“With its production buildouts and major acquisitions soon to be in the rear-view mirror, CCHW will enter 2021 as a uniquely positioned operator in the U.S. market, given its exposure to a breadth of high value jurisdictions,” Hammill noted in his investment thesis. “The forthcoming integration of recently acquired assets and the company’s competitive advantage in adult-use products and services, paired with the lucrative market opportunity, provide CCHW a path to potentially generating a half-billion in annual revenue within the next five years.”

Columbia Care’s financial reports were headlined by $132 million in revenue; though it constituted impressive growth of 169.4 per cent on a year-over-year basis, it still came in below the Paradigm projection of $145 million and the consensus estimate of $143 million. In total, 60 per cent of the company’s combined revenue came from five states: California, Colorado, Massachusetts, Ohio and Pennsylvania. (All figures in US dollars except where noted otherwise.)

According to Hammill, Columbia Care currently has 79 active dispensaries and another 20 in development, with many of the developing dispensaries being located in New York, New Jersey and Virginia, all of which have only legalized cannabis for recreational use within the past year.

On top of the new market expansion, Hammill also noted present or upcoming market entries into Utah, Missouri and West Virginia as a further catalyst for the company’s growth as it expands its national presence.

Meanwhile, the company’s EBITDA also took a significant step forward at $31 million for the quarter (consensus projection $31 million, while Paradigm estimated $35 million) for a 930 per cent year-over-year increase.

“Our team continues to execute on our strategic objectives and to be the first to seize upon tactical milestones as they materialize,” said Nicholas Vita, CEO of Columbia Care in the company’s November 12 press release. “We were the first operator to offer whole flower in Virginia and New York, and we are prepared to be among the first to transition in scale to adult use in New Jersey, New York, and Virginia – all of which are expected to grow into multi-billion dollar markets.”

“We see momentum building into 2022 and beyond as we optimize our national portfolio and launch brands throughout our markets,” Vita added.

Following the lead of company management in its modified guidance, Hammill has lowered some of his financial projections going forward.

From a revenue standpoint, Hammill now projects Columbia Care to hit $472.8 million in 2021 compared to his initial $500.6 million estimate to still produce a potential year-over-year increase of 163.1 per cent, while the change in 2022 is much more modest, as Hammill now projects $773.5 million instead of $775.9 million for potential year-over-year growth of 63.6 per cent.

Meanwhile, Hammill still expects the company’s EBITDA to be significantly positive in 2021, though at a reduced projection of $87.5 million compared to his initial $96.5 million estimate. Hammill then makes a higher projection for 2022, raising his estimate to $196 million from $185.8 million.

In both years, Hammill’s revisions come in lower than the consensus projections; for 2021, the consensus projects $502.7 million in revenue and $95.8 million in EBITDA, while the 2022 projections are for $777.6 million in revenue and $220.7 million in EBITDA.

Though Hammill lowered his share price target on account of revised management guidance, he still sees Columbia Care trading at a discount despite having attained a similar size and a broad national footprint, as well as exposure to key jurisdictions.

“For investors looking for exposure to U.S. cannabis, we think Columbia Care is a high-quality name at an attractive price and believe it has considerable upside potential in the coming year,” Hammill said.

With the pullback across the cannabis space, Columbia Care’s stock price has dropped by 44.5 per cent over the course of the year with a high of C$7.63/share on January 15. The stock has shown signs of rebounding over the last two weeks, having increased in value by 19.7 per cent since bottoming out at C$3.59/share on November 4. At the time of publication of his report, Hammill’s C$11.50 share price represented a projected one-year return of 167 per cent.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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