Decibel Cannabis is a four-bagger from here, says Raymond James

Raymond James analyst Rahul Sarugaser dubbed the latest quarter from Decibel Cannabis (Decibel Cannabis Stock Quote, Charts, News, Analysts, Financials TSXV:DB) an impressive showing, one which has put DB into the top ten in terms of market share among Canadian licensed producers. In a Thursday update, Sarugaser reviewed Decibel’s third quarter and reiterated an “Outperform” rating on the stock, saying the numbers point to a surge in growth from the company.

Calgary-based Decibel Cannabis, which has three operating production houses with a focus on extraction and cannabis derivatives as well as a retail business under the Prairie Records banner, released its Q3 numbers on Wednesday, featuring net revenue up 37 per cent year-over-year but down one per cent sequentially to $18.3 million and adjusted EBITDA of $4.3 million compared to $1.8 million a year earlier. 

The company launched five new products over the quarter, including two vape flavours and three infused pre-rolls, while across Canada, Decibel said it’s in the #1 spot on vape sales at a 14.5 per cent market share and at #3 in pre-roll sales at 8.4 per cent.

“Our third quarter results coupled with another record market share month to start the fourth quarter continue to demonstrate our focus in achieving our 2022 operational outlook,” said Paul Wilson, CEO, in a press release. “With highly successful recent product launches, the demand we are experiencing has been tremendous and provides opportunity for material growth for Decibel.”

By the numbers, Sarugaser said DB’s third quarter revenue at $18.3 million was under his estimate at $22.3 million, while EBITDA at $4.3 million was above his forecast at $3.7 million. Net Income at $2.9 million was also above the Raymond James call at $1.0 million.

Sarugaser said there’s more growth ahead for Decibel, as management indicated that the Q3 results came in spite of the fact that the company faced significant packaging bottlenecks, with demand outstripping supply, thus setting Decibel up for a strong fourth quarter.

“We highlight DB as Canada’s fastest-growing LP, capturing some of the highest margins we’ve seen in this industry; in our view, DB is a very well-run, +cash-flowing business that our clients should be aware of, particularly as the company executes what could be an extraordinary 4Q22,” Sarugaser wrote.

“We anticipate DB adding further packaging capacity in the coming months, as well as infused pre-roll automation equipment, which should be key drivers of FY23 growth, helping DB catch up with demand for its General Admission and QWEST-brand products,” he said.

Sarugaser maintained a 12-month target price of $0.40 per share on Decibel, which at press time implied a return of 400 per cent.