Decibel Cannabis has an upside of 186%, says Haywood

Following the company’s most recent results, Haywood analyst Neil Gilmer says he thinks there is money to be made on Decibel Cannabis (Decibel Cannabis Stock Quote, Chart, News, Analysts, Financials TSXV:DB).

On August 17, Decibel Cannabis reported its Q2, 2023 results. The company posted Adjusted EBITDA of $7.3-million on revenue of $30.9-million, a topline that was up 66 per cent over the same period last year.

“Our strong second quarter sequential net revenue growth, driven by demand for our core products and international exports, continues to exceed our publicly-stated targets,” CEO Paul Wilson said. “We continue to highlight the success in our new, unique and innovative product strategy, demonstrated through clear consumer preference to our infused preroll strategy. In 2023, our industry-leading brand, General Admission, has grown category share to 49 per cent (plus 6 per cent year to date) in light of significant category competition through new competitive brands — plus 50 brands (plus 56 per cent year to date) — and new SKUs (stock-keeping units) — plus 156 SKUs (plus 62 per cent year to date). Currently, the infused preroll segment makes up approximately 34 per cent of the Canadian preroll category; in established U.S. markets, it makes up approximately 60 per cent (California and Arizona year-to-date sales 2023). We continue to see tailwinds for our core business that will further reinforce our Canadian market position and international presence.”

Gilmer said the results were slightly above his expectations.

“We have updated out model following the results and a call with management,” the analyst said. “We have slightly increased our revenue for 2023 following the strong Q2 offset by slightly lower gross margins providing only a modest bump in EBITDA. We expect Decibel will exceed its guidance for 2023 and outpace the Canadian marketgrowthbased on trends year-to-date.”

In a research update to clients August 17, Gilmer maintained his “Buy” rating and one-year price target of $0.40 on Decibel Cannabis, implyinga return of 186 per cent at the time of publication.

The analyst thinks DB will post EBITDA of $30.3-million on revenue of $124.2-million in fiscal 2023. He expects those numbers will improve to EBITDA of $38.0-million on revenue of $140.7-million the following year.