Decibel Cannabis has a 186 per cent upside, says Raymond James

Investors looking for a piece of Canada’s fastest-growing cannabis LP should have one name in mind — Decibel Cannabis (Decibel Cannabis Company Stock Quote, Charts, News, Analysts, Financials TSXV:DB). That’s the scoop from Raymond James analyst Rahul Sarugaser, who delivered an update to clients on Monday where he reviewed the company’s latest financials.

Calgary-based licensed producer (LP) Decibel Cannabis announced on Monday preliminary fourth quarter 2022 financials and provided a 2023 outlook. The company said the Q4 should come in at between $25.25 and $26.25 million in revenue, good for over 38 per cent year-over-year growth, and adjusted EBITDA between $6.25 and $7.25 million, representing over 47 per cent year-over-year growth. 

Decibel said the Q4 top and bottom numbers would be quarterly records, resulting in a 77 per cent growth for the company overall in 2022. On guidance, Decibel said it’s targeting over 35 per cent revenue growth for 2023.

“We remained focused on developing consumer loyalty and category expansion supported through refinement of differentiation within our products. By creating demand, it led to an abundance of attractive investment opportunities by way of automation and supply chain optimization, leading to record level gross margin in the back half of the year,” said Decibel in a press release.

In his commentary, Sarugaser said the Q4 numbers would show a company continuing to gain ground in the Canadian cannabis market. Sarugaser said Decibel drove impressive market share gains over the third quarter last year as well as exhibiting a strong profitability profile, with positive adjusted EBITDA, net income and free cash flow and 52 per cent gross margins.

On the 2023 outlook, Sarugaser noted that at 35 per cent topline growth, Decibel would be hitting well above the $100 million mark, while adding that management also has longer-term ambitions to reach $200 million in revenue for its Canadian operations and for an equal contribution from international sales, a relatively new segment for Decibel.

“We reiterate our Outperform rating on DB and highlight the company as Canada’s fastest-growing LP, capturing some of the highest margins we’ve seen in the cannabis sector, driving consistent positive cash flow, a genuine rarity in this industry,” Sarugaser wrote.

“In our view, DB is a very well-run business that trades at a material discount to peers, which we highlight as a name our clients should be aware of, particularly in light of these extraordinary 4Q22 preliminary results and strong FY23 outlook,” he said.

With his “Outperform” rating, Sarugaser also maintained a 12-month target price of $0.40 per share, which at press time represented a projected one-year return of 186 per cent.