The Cannabist Company. Buy, sell, or hold?

Following the sale of assets to a peer, Ventum Capital Markets analyst Andrew Semple remains on the fence when it comes to The Cannabist Company (The Cannabist Company Stock Quote, Chart, News, Analysts, Financials NEO:CBST).

On August 22, Verano Holdings announced it had completed the acquisition of Arizona and Virginia subsidiaries of The Cannabist Company.

“Verano has been a great partner through a very thoughtful transaction and we are excited for what the future holds for our eastern Virginia and Arizona teams with Verano,” said Cannabist CEO David Hart. “This was a critical move for us as we continue our path of building a better business and reshaping our footprint to improve our financial footing, ultimately bringing us closer to profitability. We look forward to working alongside Verano in Virginia as we continue in the Richmond region to support a growing medical program and look toward the future of adult use. Thank you to everyone involved for making this a success.”

The analyst said that while he regards this as a positive, he also thinks investors should tread carefully.

“Although a step in the right direction, we still believe Cannabist’s balance sheet possesses sizeable risk with $59.5M of convertible debt maturing in June 2025, followed by an additional $185.0M tranche of debt in February 2026 that must be repaid or refinanced,” Semple wrote. “In addition, there are still uncertainties related to potential proceeds from other planned divestitures and cost-saving measures (i.e., FL, and NY/CO store closures), along with the impact on Cannabist’s earnings power from the VA/AZ divestitures. We await further progress updates and upcoming Q3/24 results for evidence of sustained progress.”

In a research update to clients August 23, Semple maintained his “Neutral” rating and price target of $0.45 on CBST.

The analyst thinks CBST will post Adjusted EBITDA of $68.5-million on revenue of $492.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $84.8-million on a topline of $499.3-million in fiscal 2025.

We reiterate our NEUTRAL rating and price target of C$0.45/shr,” he added. “Our price target is based on a DCF valuation of C$0.61/shr (prev. C$0.58/shr), which uses a 17% discount rate and 20.0x exit FCF multiple. Our price target takes a 20% haircut on our DCF valuation to reflect possible debt refinancing and dilution risk, resulting in an adjusted DCF valuation of C$0.49/shr (prev. C$0.47/shr).”