Beacon Securities launched coverage on Wednesday of US cannabis name Cansortium Inc (Cansortium Stock Quote, Charts, News, Analysts, Financials CSE:TIUM.U), with analyst Russell Stanley saying the stock will serve investors well, once the market turns north again on cannabis.
Headquartered in Miami, Florida, Cansortium has operations in Florida, Pennsylvania and Texas and has the Fluent brand of cannabis products and stores. TIUM currently has 29 dispensaries in Florida, three in Pennsylvania and is one of just three companies to have a license to operate in Texas.
Stanley said Cansortium ranked sixth in Florida in terms of volume sales of both flower and oil-based products for the fourth quarter 2022 and he sees the company expanding its FL dispensary count from 29 to 35 over 2023.
As far as the company’s evolution goes, TIUM IPO’d in 2019 after which management changed approaches and exited non-core markets to concentrate on the three listed above. Stanley said the company did well by bringing in new leadership and reworking its balance sheet so as to be able to compete in the hot pot market in Florida. Moreover, Stanley said he’s been impressed by TIUM’s adjusted EBITDA margins, which hit 53 per cent over the third quarter 2022, putting it tops among the 28 US operators in Beacon’s coverage universe.
“[Cansortium] also produced an operating cash flow margin of 25 per cent, also ranking it #1 in the group. This is particularly impressive given 80 per cent+ of the company’s revenue/adjusted EBITDA comes from Florida, which became a more competitive market during F2022,” Stanley wrote.
On its Texas interests, Stanley said TIUM is in a unique position, as the potential in the state — which currently operates a narrow medical-only program — is as big as the state itself, one where voter support is increasing for expanding the cannabis market into adult-use, Stanley said.
On the topic of federal reform — one where the industry just suffered a major setback with the failure of Congress to pass cannabis reform banking legislation in December — Stanley said investors with enough patience will be rewarded by Cansortium.
“Federal reform remains a ‘when-not-an-if’ in our view, but in the nearer-term, we believe investors should focus on companies producing strong margins/operating cash flow trading at below-peer valuations. Cansortium fits that criterion like a glove,” he wrote.
On its financials, Stanley sees Cansortium generating full 2022 and 2023 revenue of $88 million and $107 million, respectively, and 2022 and 2023 adjusted EBITDA of $37 million and $44 million, respectively. (All figures in US dollars except where noted otherwise.)
With the coverage launch, Stanley started TIUM off with a “Buy” rating and C$1.00 target price, which at the time of publication represented a projected one-year return of 641 per cent.
“Given the company’s attractive state footprint, elite-level margin profile and the potential value of the TX license, we believe TIUM should be an attractive acquisition target for a lengthy list of potential buyers,” Stanley added.