Cansortium has loads of upside, says Beacon

It’s been a long way down for US cannabis stock Cansortium (Cansortium Stock Quote, Charts, News, Analysts, Financials CSE:TIUM), but investors should still be taking an interest, according to Beacon Securities analyst Russell Stanley. In a quarter preview delivered on Monday, Stanley reiterated a “Buy” rating on Cansortium, saying the company has one of the strongest earnings and cash flow margin profiles in the cannabis sector.

Cansortium is a vertically-integrated multi-state operator in the US states of Florida, Pennsylvania and Texas and has the FLUENT brand of products. TIUM has fallen hard over the past two years, much like the rest of the cannabis sector. Currently trading under $0.10 a share, Cansortium was above $1.00 as of June 2021.

Cansortium is expected to release its first quarter 2023 financials on Wednesday after the market close, with Stanley forecasting revenue of $20 million and adjusted EBITDA of $5 million.

“Our estimates contemplate a 13 per cent quarter-on-quarter decline in revenue from $23 million+ in Q4. During Q1/23, TIUM flower sales volumes declined ten per cent quarter-on-quarter and its oil-based sales volumes declined 14 per cent, following 20 per cent + growth in each category in Q4, which we attribute to seasonality that we believe is reflected in our forecast,” Stanley wrote.

Stanley pointed out that Cansortium has 80 per cent of revenue and earnings from its Florida business, making it the most Florida-levered publicly-traded pot co. Thus, Florida’s status vis a vis an adult use market is noteworthy. 

Stanley said Florida Attorney General Ashley Moody recently submitted the proposed adult-use legalization ballot initiative to the Supreme Court while at the same time expressing her opposition to it, saying she believes the ballot language violates the single-subject rule — which was the same argument used against an adult-use initiative in 2021, Stanley noted.

In Texas, the State Senate recently failed to act on legislation to expand the state’s medical program. Cansortium issued a statement, saying it was disappointed in the Senate’s decision and pointed to Texas’ ranking as the number one state for cannabis possession arrests as a cause for reform.

“With more than 80 per cent of Texans supporting the decriminalization of cannabis and the legalization of medical cannabis in the state, we must continue to call on our elected leaders to act on the will of their constituents and right the wrongs of the past,” the company said in a statement.

Stanley said TIUM is currently trading at a 2.2x multiple of 2024 EV/EBITDA, which represents a 50 per cent discount to the 4.4x average among CSE-listed US operators.

“While this is a smaller/less liquid name, it also has one of the strongest EBITDA/cash flow margin profiles in the space, and offers high leverage to Florida, where strong AU progress is being made,” he said.

With the update, Stanley reiterated a “Buy” rating and C$1.00 target representing a projected return of 1150 per cent.