Beacon Securities analyst Doug Cooper likes the new acquisition by CBD topicals company Abacus Health Products (Abacus Health Products Stock Quote, Chart, News CSE:ABCS), which has added to its already-strong distribution capabilities with the purchase of CBD brand Harmony Hemp. In an update to clients on Tuesday, Cooper reiterated his “Buy” recommendation and C$15.00 target price for ABCS. Abacus on Tuesday announced the acquisition of the principal assets of the companies owning the Harmony Hemp brand, which has national distribution to over 4,000 locations in grocery and drugstores, putting Abacus’ total retail footprint at over 12,000 locations across the US. The US$5.5-million deal involves about $2.7 million in cash and about $2.8 million in shares, with the cash component to be spread out over three years ($1.9 million in 2020, $0.7 million in 2021 and $0.1 million in 2022). (All figures in US dollars except where noted otherwise.) “With this acquisition, Abacus is one of the largest, if not the largest, suppliers and distributors in the United States of topical products infused with CBD and hemp in the F/D/M industry,” said Perry Antelman, Abacus CEO, in a press release. “Harmony Hemp has long-standing relationships with quality retailers in the F/D/M channel and highly complementary products with Abacus. Our shared desire to bring innovative products to market makes this strategic combination a natural fit,” Antelman added. Cooper says along with expanding its reach, the already accretive acquisition adds to ABCS’ product line and provides cross-selling opportunities as Abacus works over the next year to get its CBDMEDIC line listed in Kroger and Albertsons stores. The acquisition is a sign of the times in the cannabis and CBD space, says Cooper, where available capital has all but dried up. “Even companies who have obtained excellent distribution, growth sales with a strong gross margin, such as Harmony Hemp (50 per cent-plus gross margin), are capital constrained. With ~$22 million in cash, ABCS is in an excellent position to capitalize on such opportunities. Even though we believe the shares of ABCS are incredibly undervalued, it still trades at a 100 per cent premium (5x FY19 sales) to the value at which it just purchased Harmony (2.5x sales),” Cooper wrote. Cooper says that one of, if not the key issue currently facing many cannabis companies is distribution, which Abacus has well under control, especially with the addition of Harmony. “Even with over 12,000 retail locations (not including the professional channel for CBDCLINIC), we believe there is still significant room within the F/D/M channel [for Abacus,” wrote Cooper. “We note that just expanding within its existing clients’ stores could grow its footprint to ~60,000. With such potential, ABCS is set to be THE leader within the CBD market, yet its market cap is still sub-$100 million or less than 1.5x our FY20 sales forecast.” Looking ahead, the analyst thinks ABCS will generate fiscal 2020 revenue and EBITDA of $51.5 million and negative $5.0 million, respectively, and fiscal 2021 revenue and EBITDA of $112.5 million and $22.5 million, respectively. As of publication date, Cooper’s C$15.00 target represented a projected return of 200 per cent.