Decibel Cannabis keeps Outperform rating with Raymond James

Raymond James analyst Michael W. Freeman has nothing but glowing remarks for Decibel Cannabis (Decibel Cannabis Stock Quote, Charts, News, Analysts, Financials TSXV:DB) and its latest reported quarter. In a Monday note, Freeman reiterated an “Outperform” rating on the stock, saying Decibel is an overlooked gem in the Canadian cannabis space.

Based in Calgary and so far focused on Western Canada, Decibel is a licensed producer and retailer of premium craft cannabis products, with the Qwest Estate cultivation and production facility in Creston, BC, and the Prairie Records chain of stores in Alberta and Saskatchewan.

The company released its first quarter 2023 financials on Monday, with revenue up 63 per cent year-over-year to $27.1 million and adjusted EBITDA up 175 per cent to $6.8 million. Adjusted EPS was $0.01 per share. 

The company said it finished the Q1 with a 6.7 per cent market share in Canada, which put it as the third-largest licensed producer.

Decibel’s share price was up around $0.35 per share two years ago before falling to sub-$0.10 territory for much of 2022. The stock has been up and down so far in 2023 and is currently trading at around $0.13.

But Freeman has high hopes for this pot stock and is maintaining a one-year target price of $0.40, which at press time represented a projected return of 208 per cent.

“DB is a much-overlooked top-2/3 player in Canadian cannabis, trading at a material discount to peers, so we highlight this as a name our clients should be aware of, particularly in light of these extraordinary 1Q23 results,” Freeman said.

On the quarter, Freeman said Decibel was one of a very few pot co’s to buck the trend of seasonal softness during the first quarter, and he relayed that the company has said its April sales have already driven further market share capture to 7.1 per cent. 

Decibel managed top and bottom beats in the Q1. Where Decibel’s topline was $27.1 million, Freeman said the consensus expectation from analysts was $26.5 million, and where adjusted EBITDA was at $6.8 million, the Street had been calling for $6.0 million.

For the upcoming Q2 2023, Freeman is now forecasting revenue of $26 million, while for the full 2023, the analyst has estimated revenue of $109 million and EBITDA of $26 million.

“We are impressed with DB’s strong and durable sales growth, particularly during the seasonally slow 1Q period in Canadian cannabis. And, DB’s industry-leading 49 per cent gross margin profile (before FV adj.) underscores the company’s attractive production model coupled with manufacturing and distribution strength,” Freeman wrote.