Columbia Care has a huge upside, says Beacon

Beacon Securities analyst Russell Stanley remains firmly in the corner of Columbia Care (Columbia Care Stock Quote, Chart, News, Analysts, Financials CSE:CCHW), reiterating his “Buy” rating and target price of C$12/share for a potential return of 237 per cent in an update to clients on Thursday.

Founded in 2012 with its headquarters in New York City, Columbia Care is an established cannabis operation in the United States, with interests in 18 jurisdictions representing an aggregate population of 175 million as well as a strong presence in the Mid-Atlantic region through its acquisition of gLeaf.

Stanley’s latest analysis comes after Columbia Care completed a $185 million private placement of 9.5 per cent senior secured first lien four-year notes.

Under the terms of the financing, Columbia Care can redeem the notes, which were issued at 100 per cent face value, on or after Feb. 3, 2024. Furthermore, Columbia Care also received binding commitments to exchange $32 million of existing 13 per cent senior secured notes due 2023 for an equivalent amount of new notes plus accrued-but-unpaid interest and any negotiated premium, so the gross proceeds totaled $153 million.

The new financing source came after the company obtained consent from its existing noteholders to amend the terms of the indenture in January, expanding its permitted indebtedness from $150 million to $350 million.

The company said it will use the funds for CAPEX, M&A and general corporate purposes, with management highlighting New Jersey, New York and Virginia as important growth markets.

“This non-dilutive financing provides Columbia Care with additional flexibility to continue executing on our strategic growth initiatives, especially in markets like New Jersey, New York and Virginia, where we are serving a growing number of medical patients and preparing for adult use on the horizon,” said Nicholas Vita, CEO of Columbia Care in the company’s February 2 press release. “We have reduced our overall cost of capital, and are grateful to our investors who recognize our improved credit profile and understand the catalysts ahead.”

Stanley also highlighted the state of Virginia in his analysis, as Columbia Care is one of only three cannabis operators with a license to operate in the state with its two licenses allowing the company to open as many as 12 dispensaries within specific health service areas.

“While the medical market is only now ramping up, the state is currently set to open its adult-use market in early 2024,” Stanley said. “With the election of a Republican governor last November, and Republicans now controlling the House of Delegates, some speculated that the opening of the adultuse market would be at risk. However, media reports note that because adult-use possession is already legal, the absence of a legal commercial market means that the only product available is from the illicit market.”

According to Stanley, local media reports have also referenced ongoing efforts to accelerate the opening of Virginia’s adult-use market to 2023.

The company also made a move at the executive level, appointing a new Chief Financial Officer in Derek Watson, who previously served as Chief Financial and Commercial Officer at Tastes on the Fly, as well as being the CFO for Starr Restaurants and Samba Brands, and being a 20-year partner and Practice Leader with KPMG.

Mr. Watson replaced Lars Boesgaard, who left Columbia Care last August to join AM-Pharma, with Michael Livingstone having served as Interim CFO since then.

Stanley projects movement in the company’s financial metrics over the next two fiscal years, projecting year-end revenue of $459 million in 2021. From there, Stanley forecasts a jump to $770 million in 2022 for an implied year-over-year increase of 67.8 per cent, then projects a move into 10 figures at $1.05 billion in 2023 for an implied year-over-year increase of 36.4 per cent. (All figures in US dollars unless otherwise noted.)

After the company reported a $4 million loss in 2020, Stanley projects a positive annual adjusted EBITDA beginning in 2021 at $88 million for an implied margin of 19.2 per cent, with a significant spike to a projected $229 million in 2022 and potential margin of 29.7 per cent. From there, Stanley forecasts a move into the 30s for the margin, with the $333 million forecast implying a margin of 31.7 per cent.

Stanley’s valuation data also comes into clearer focus, with the EV/IFRS revenue multiple forecast to drop from the projected 3.3x in 2021 to 2x for 2022, then to 1.5x in 2023. Meanwhile, with positive adjusted EBITDA projected, Stanley forecasts the EV/EBITDA multiple to be 17.4x in 2021, with a drop to 6.7x in 2022 in play before a dip to 4.6x in 2023.

Over the last 12 months, Columbia Care’s stock price has dropped off by 60 per cent, with a 6.8 per cent drop since 2022 began. The stock hit a 52-week low of US$2.65/share on January 28, a far cry from its 52-week high of US$7.65/share on February 10. The company’s next quarterly results are to be reported on March 15.