Newly minted Canadian cannabis company BZAM Ltd (BZAM Ltd Stock Quote, Charts, News, Analysts, Financials CSE:BZAM) should be hitting positive earnings by mid-year, according to Clarus Securities analyst Noel Atkinson, who initiated coverage of the stock on Thursday with a “Speculative Buy” rating. Atkinson said BZAM’s focus on the Canadian market is an advantage and its revenue is expected to hit $100 million this year, putting it within the top-ten licensed producers by sales.
Cannabis company The Green Organic Dutchman completed this past November a merger with privately-held BZAM and then last month changed its name to BZAM Ltd.
CEO Matt Milich wrote in a February press release, ”Having already realized the vast majority of the cost synergies envisioned with the recent merger, as well as starting on the right foot for both our 2023 revenue and EBITDA goals, the Name Change marks an important milestone as we complete our integration process and move forward as one unified Company.”
On the merger, Atkinson said one of the most overused phrases in investment banking may be “one plus one equals three,” but the new BZAM does fit the bill. Cost synergies of over $10 million annually have been identified by management, while organic revenue growth is also expected to contribute.
Atkinson said where the former BZAM’s brands are strong in mid-priced vapes and flower and a strong market position in Western Canada, TGOD has premium organic flower products, a concentrates portfolio, Canadian rights to a leading US edible brand in Wyld and has been adding market share in Ontario and Quebec.
“We see this as a ‘model merger’ in the Canadian cannabis LP sector, where two sizeable companies with limited product or geographic overlap come together to drive economies of scale,” Atkinson wrote.
By the numbers, Atkinson said The Green Organic Dutchman generated $38 million in revenues and negative adjusted EBITDA of $20.5 million in the trailing 12 months prior to the merger, but he has put the combined entity at $105.3 million in revenue for the full 2023 year, with adjusted EBITDA to come in at positive $0.9 million. For 2024, the analyst has forecasted $119.3 million in revenue and EBITDA of $7.4 million.
On the Canadian focus of the new company, Atkinson said unlike in the US, Canada’s wholesale and retail pricing has been well-supported by policies from government distribution agencies, with a current wholesale market of an estimated $2.5 billion per year and an expectation of growth of between five and seven per cent annually.
“While many of the original vanguard of LPs have largely refocused outside the Canadian AU market, BZAM has been quickly taking market share and achieving economies of scale,” he said.
With his “Speculative Buy” rating, Atkinson started BZAM off with a 12-month target price of $0.65 per share, representing at press time a projected return of 100 per cent.