Cannabis company Verano is a Buy, says Beacon

Beacon Securities analyst Russell Stanley trimmed his estimates on US cannabis company Verano Holdings (Verano Holdings Stock Quote, Charts, News, Analysts, Financials CSE:VRNO) in a Thursday update to clients but he kept a “Buy” rating on the stock, saying Verano is trading at a discount to its cannabis sector peers.

Chicago-headquartered Verano is a vertically integrated cannabis company in the US with operations in 13 states and a stable of product and retail brands. The company announced on Thursday the opening of its 131st dispensary nationwide, this one a MÜV store in Fort Pierce, Florida, representing Verano’s 70th store in the Sunshine State. 

“MÜV Fort Pierce provides area patients with another convenient location to access our array of high quality products, and we look forward to serving Florida’s growing medical marijuana community as we continue our retail expansion across the state,” said Verano President of the Southern Region John Tipton in a statement.

Looking at the most recent state-released numbers on Florida sales volumes, Stanley said VRNO’s flower sales volumes improved seven per cent sequentially over the second quarter while its oil-based sales slipped two per cent. 

Stanley noted that Verano kept its third place ranking in Florida’s flower market share at 10 per cent while slipping from fourth to fifth in oil-based products with a nine per cent share.

The analyst trimmed his Q2 forecast on VRNO due to the new Florida data, going from revenue of $235 million to $230 million and from adjusted EBITDA of $72 million to $71 million. (All figures in US dollars except where noted otherwise.)

“Our prior forecast assumed seven per cent quarter-on-quarter revenue growth in Florida, and while we believe VRNO has held relatively firm on pricing compared to some other operators, we now assume that Florida revenue was essentially flat for VRNO in Q2,” Stanley wrote.

Florida currently has a medical-only market, but there are movements to build a case for adult-use. On that front, Stanley noted that Florida’s Attorney General recently submitted her argument opposing the proposed ballot language for adult-use legalization for the upcoming election.

With his “Buy” rating, Stanley also kept his target at C$17.00 per share, representing at press time a projected one-year return of 317 per cent.

“We view the Supreme Court review of the ballot language as the last major hurdle to securing a spot on the November 2024 ballot. The review must be completed by April 2024,” Stanley wrote.

“The stock is trading at 4.1x our F2024 adjusted EBITDA forecast, representing a 13 per cent discount to the 4.7x average amongst CSE-listed US operators,” he said.