Huge upside to cannabis stock Vext Science, says Beacon

It’s full steam ahead for US cannabis company Vext Science (Vext Science Stock Quote, Charts, News, Analysts, Financials CSE:VEXT), according to Beacon Securities analyst Russell Stanley, who delivered an update to clients on Monday, saying the stock is trading at a discount to its peer group.

Vertically-integrated Vext Science has its core business in the state of Arizona, with wholesale operations and two Herbal Wellness Center dispensaries in the Phoenix area along with indoor and outdoor cultivation facilities. The company is also moving toward vertical integration in Ohio, where it recently entered agreements to consolidate and expand its ownership interests.

With Vext expected to report fourth quarter financials on Wednesday, Stanley is calling for revenue to come in at $8.2 million compared to $9.3 million a year earlier and adjusted EBITDA at $2.7 million compared to $3.4 million for the Q4 2021. The consensus estimates are for $8.2 million in revenue and $3.5 million in EBITDA.

In his comments, Stanley noted that Vext has completed its license transfer on a dispensary in Jackson, Ohio, and is currently working on the same for a dispensary in Columbus. Stanley said Ohio has considerable growth potential, as the state (seventh-largest in the US) introduced an adult-use legalization bill earlier this year, although Stanley said there is a general consensus that the legislature won’t act on the bill before the May 3 deadline, leaving adult-use supporters to try to secure a spot on the November 2023 ballot for the issue. Stanley said he’ll be looking for an update on the company’s Ohio build-out in management’s Q4 commentary.

“VEXT is now trading at 3.7x our F2023 adjusted EBITDA forecast. This represents a 41 per cent discount to the 6.3x average amongst CSE-listed US operators. Potential company-specific catalysts include the Q4 results/commentary Wednesday, and additional buildout updates. Technically speaking, the stock appears set to test its December lows at $0.21/sh,” Stanley wrote.

On its Arizona business, the analyst noted Vext’s receipt in February of a certificate of occupancy for its 17K sq ft cultivation facility in Eloy, with first planting expected to begin during the second quarter and harvest expected in Q3.

“The addition of Eloy allows VEXT to supply 100 per cent of its retail flower needs, as well as the full current requirements for its Vapen product line, which VEXT also sells to the wholesale market. Eloy can accommodate an additional 17k SFT of cultivation once demand warrants it,” he said.

With the update, Stanley reiterated a “Buy” rating on VEXT and C$1.50 target price, representing at the time of publication a projected 12-month return of 552 per cent.