CBST has 189% upside, says Beacon

Its third quarter results are in the books and Beacon analyst Russell Stanley still thinks The Cannabist Company (Cannabist Company Stock Quote, Chart, News, Analysts, Financials NEO:CBST) is a buy.

On November 14, CBST reported its Q3, 2023 results. The company posted Adjusted EBITDA of $20.5-million on revenue of $129.2-million, a topline that was essentially unchanged from the same period last year.

“”The third quarter results demonstrate consistent execution, with stable revenue of more than $129 million and Adjusted EBITDA of more than $20 million, in a complicated quarter rife with corporate actions and changes to the business, in only 8 weeks of operating as an independent Company,” said Nicholas Vita, CEO of The Cannabist Company. “In July, we announced the mutual agreement to terminate the pending merger agreement after 16 months, and immediately announced corporate restructuring and operational changes to launch the company into our next chapter, focused on resetting manufacturing priorities, managing the balance sheet, and beginning the process of restructuring elements of COGS to drive gross margin improvement in 2024. Less than two months later, we announced the transition from Columbia Care to The Cannabist Company, which is a reflection of where our organization and the market are heading, as we continue to innovate and differentiate in an ever-evolving industry”.

Stanley gave an overview of the third quarter.

“Earlier today, CBST reported Q3 revenue/adjusted EBITDA of $129M/$20M, slightly below our forecast of $130M/$23M and consensus at $131M/$22M,” he said. Revenue was essentially in line with our forecast and flat q/q. Adjusted gross margins were 177 bps below our forecast (39% v. 41%), and down 144 bps q/q. During the quarter, the company worked to reduce inventories while still weighed down by a ~500 bps gross margin drag associated with underutilized cultivation capacity. The gross margin shortfall bled into the adjusted EBITDA margin, which was 147 bps below our forecast, explaining the EBITDA shortfall v. our estimate. The company also reported operating cash flow of $2M, achieving positive CFO one quarter ahead of forecast. We are currently awaiting the release of the 10-Q to better understand the role that working capital release played in the quarter.”

In a research update to clients November 14, Stanley maintained his “Buy” rating and one-year price target of $1.75 on CBST, implying a return of 189 per cent at the time of publication.

The analyst thinks the company will post Adjusted EBITDA of $76-million on Net Revenue of $510-million in fiscal 2023. In fiscal 2024, he expects Adjusted EBITDA of $99-million on a topline of $595-million.

“CBST is now trading at 5.4x our F2024 adjusted EBITDA forecast. This represents a 14% discount to the 6.2x average amongst CSE-listed US operators. The stock has found support from its 5-year lows at C$0.50/sh, and faces little technical resistance until the 50-week MA at just above C$0.85/sh,” Stanley added.