There’s a whole lot of upside to owning US cannabis stock Vext Science (Vext Science Stock Quote, Charts, News, Analysts, Financials CSE:VEXT), according to Echelon Capital Markets analyst Andrew Semple, who delivered a report to clients on the company on Thursday. Semple says Vext’s focus on the pot powerhouse state of Arizona will continue to yield excellent results from its vertically integrated operations.
Vext Science is a cannabis products company which makes and sells edibles, concentrates and accessories under the Vapen brand as well as hemp-based products under Pure Touch Botanicals. The company also has dispensaries in Arizona and business in Ohio. On Thursday, the company announced that an affiliate of its joint venture partner in Ohio has received a Certificate of Operation to begin cultivation at its 25,000 sq ft facility, with the first harvest expected in the first quarter of 2023.
Vext CEO Eric Offenberger said the Certificate is a significant win for the company and its JV partner Appalachian Pharm Processing (APP) and affiliate as they move closer to full vertical integration in Ohio’s attractive limited license jurisdiction.
“Vapen brands are already available on over 95 per cent of the dispensary shelves in the state through our partnerships and sales continue to grow consistently as the Ohio market develops. With cultivation firmly established, we will be well positioned to cater to the growing customer base and continue to build value for our shareholders,” Offenberger wrote in a press release.
In his update, Semple said the new development is a positive for Vext, noting that the company has an LOI to acquire a 37.5 per cent economic ownership in APP’s affiliate upon Department of Commerce approval.
“We reiterate our Speculative Buy rating and target price of C$1.75/shr based on our DCF valuation of C$1.98/shr (prev. C$2.03/shr),” Semple wrote. “We note that we have reduced our Q322 and Q422 estimates ahead of Vext’s Q322 results, as state level sales did not grow as fast as we anticipated in Arizona and because inflationary pressures remained sticky in the quarter.”
“While our DCF valuation may continue to suggest the potential for a higher price target, we would first look to see confirmation of Vext moving back into positive sales growth as one of the key base case assumptions in our outlook (we expect to see this in Q422),” he said.
For the company’s upcoming third quarter 2022 financial report, Semple is forecasting $8.4 million in revenue and $4.4 million in adjusted EBITDA, moving to Q4’s $9.1 million in revenue and $4.8 million in EBITDA. (All figures in US dollars except where noted otherwise.)
On Vext’s Arizona business, Semple said the carrying out of adult-use sales (which became legal in January, 2021) should at least double the addressable market opportunity, with almost all of the upside accruing to the incumbent medical cannabis companies like Vext.
At press time, Semple’s reiterated C$1.75 target represented a projected one-year return of 536 per cent.