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US cannabis stock Verano is a Buy, says Beacon

Stronger than expected key figures in its Q1 report are a good sign for US cannabis name Verano (Verano Stock Quote, Charts, News, Analysts, Financials CSE:VRNO), according to Russell Stanley, analyst for Beacon Securities, who delivered a report to clients on the company on Thursday. 

Chicago-based Verano, which has interests in 14 states including core markets in Illinois, Florida, New Jersey and Pennsylvania, announced its first quarter financials on Wednesday, showing revenue of $227.1 million compared to $202.2 million a year earlier and an adjusted EBITDA of $70.6 million compared to $87.2 million a year ago. (All figures in US dollars except where noted otherwise.)

“We remain confident in our ability to continue growing the business in a challenged environment, will closely monitor developments in Washington D.C. on the reintroduction of SAFE banking legislation, and look forward to leveraging our deep experience in transitioning markets as we approach the forthcoming launch of adult use sales in Maryland,” said Founder, Chairman and CEO George Archos in a statement.

The top and bottom numbers were slightly better than expected, according to Stanley, where the $227 million topline compared to his estimate at $226 million and the consensus call at $225 million and the adjusted EBITDA at $71 million compared to his call at $69 million and the Street at $70 million.

“Revenue improved by one per cent, and while that is a modest gain, it is a pleasant surprise vs. management’s guidance for a flat top line from Q4. This also represents y/y growth of 12 per cent, driven by the opening of the adult-use market in New Jersey (in April 2022) and Connecticut (in January 2023), partially offset by continued weakness in Pennsylvania,” Stanley wrote.

Drilling down, the analyst noted that VRNO’s retail revenue improved by 12 per cent year-over-year but slipped two per cent sequentially to $184 million, while net wholesale revenue was up 13 per cent from a year ago and 11 per cent from the previous quarter to $43 million. Further, sales of house brands through the company’s retail outlets were up two per cent sequentially to over $37 million and represented 46 per cent of retail sales.

Stanley estimates that Verano currently trades at a 14 per cent discount to its peer group.

“Even when treating income tax payables as debt, VRNO is trading at 4.2x our F2024 adjusted EBITDA forecast. This represents a 14 per cent discount to the 4.8x average amongst CSE-listed US operators. Potential company-specific catalysts include further buildout updates, M&A activity and the Q2 results in August,” he said.

With the update, Stanley reiterated a “Buy” rating and C$17 target, representing a projected return of 295 per cent.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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