This cannabis stock has a huge upside, says Echelon

Look for Ohio to be a strong growth driver going forward for US cannabis name Vext Science (Vext Science Stock Quote, Charts, News, Analysts, Financials CSE:VEXT), according to Echelon Capital Markets analyst Andrew Semple, who recently reiterated a “Speculative Buy” rating after first quarter earnings from VEXT.

Vext Science, which has cannabis production and retail assets in Arizona and Ohio and manufactures the Vapen brand of products, announced first quarter 2023 earnings on May 25, coming in with revenue of $9.1 million compared to $10.8 million a year earlier. Fourth quarter 2022 revenue was $8.2 million. (All figures in US dollars except where noted otherwise.)

“The first quarter of 2023 marked a solid start to the year for Vext in the context of a challenging environment across the board for consumer-facing businesses. In Arizona, the state reported a ~15 per cent decrease in overall sales in the first two months of the year, as compared to the same period in 2022. Despite these challenges, our operated dispensaries outperformed the overall state average,” said CEO Eric Offenberger in a press release.

Semple called it a solid quarter, with the $9.1 million topline being above his $8.6 million estimate. Price compression in the Arizona market was offered as a main factor in the year-over-year revenue drop, but the analyst said Vext performed a bit better than the market average, with its transaction volume in stores rising by 25 per cent year-over-year, according to management. Adjusted EBITDA at $2.9 million was slightly below Semple’s forecast at $3.1 million, with pricing pressure in Arizona impacting profitability.

Semple said management is expecting Arizona to remain flattish over the second quarter with better growth opportunities over the second half of the year if pricing conditions stabilize.

On Ohio, Semple noted that Vext is close to establishing vertically integrated operations, with one retail store in Jackson, plans to consolidate another store in Columbus, an active processing facility and a Tier 1 cultivation license which is the largest in the state.

Semple said the Tier 1 facility represents the largest individual economics driver for Vext in 2023.

“The Q123 results and management’s commentary reaffirmed our long-term earnings expectations for Vext. We remain excited for H223 which should demonstrate a strong uptick in growth and margins once Vext begins to fully realize the benefits of multi-year investments made in Ohio and Arizona, primarily driven by new cultivation capacity in those states,” Semple said in his May 25 note.

Semple is forecasting Vext’s revenue to go from $35.4 million in 2022 to $41.9 million in 2023 and to $62.8 million in 2024, while adjusted EBITDA is projected to go from $14.8 million in 2022 to $14.5 million in 2023 and to $25.1 million in 2024.

With the update, Semple reiterated a 12-month price target of C$1.25 per share, which at press time represented a projected return of 355 per cent.