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Huge upside to Vext Science, says Echelon

The stage is set for an exciting 2023 for Vext Science (Vext Science Stock Quote, Charts, News, Analysts, Financials CSE:VEXT), according to Echelon Capital Markets analyst Andrew Semple, who reviewed the latest news from the company in a client update on Friday. Semple reiterated a “Speculative Buy” rating on the stock, saying Vext’s consolidation of vertically integrated operations in the state of Ohio will support strong growth for the company going foward.

Vext Science, which has operations in Arizona including branded cannabis products, cultivation and processing as well as retail, announced on Thursday a proposed transaction to take full ownership interest in its Ohio joint venture. Previously, Vext had a 37.5 per cent stake in cultivation and processing facilities and a 50 per cent stake in a retail location. 

Now, Vext has agreed to acquire all of the outstanding membership interests not already owned in Appalachian Pharm Processing (APP), Appalachian Pharm Products LLC (AP Products), and APP1803 LLC, for total consideration of $12.5 million, to include $2.0 million in cash, $9.0 million in promissory notes and nine million shares valued at $1.4 million. (All figures in US dollars except where noted otherwise.)

Separately, Vext also announced a definitive agreement to acquire Buckeye Botanicals, which has a dispensary in Jackson, Ohio, with Vext to pay $6.9 million for the store.

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“We have consistently viewed Ohio as the focus for the next leg of Vext’s growth. Ohio is a large, growing medical market with the potential to move to adult use, and its highly regulated, vertical market structure makes the state very attractive from a long-term return on capital perspective,” said Vext CEO Eric Offenberger in a press release.

Semple said he is viewing the deals as positives for Vext, as they will enhance the growth profile of its business by entering an attractive medical market with adult-use upside potential. He noted Ohio’s medical market has trailing 12-month sales of $465 million, which could balloon to an overall cannabis market of more then $2.5 billion if and when the state legalizes adult-use.

Just as importantly, Vext entered into the Ohio market at a very attractive valuation, Semple said, and he estimated $35 million in sales for Vext in Ohio and $11 million in EBITDA by 2024, which would represent a multiple of about 3.2x EBITDA relative to the company’s all-in investment in the state.

“We see significant upside in the share price from current levels, as Vext executes on its growth pipeline, pays down debt, and generates spare cash for shareholders,” said Semple.

With his maintained “Speculative Buy” rating, Semple also reiterated a 12-month target price of C$1.75 per share, which at press time represented a projected return of 695 per cent.

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