Microcap cannabis company Heritage Cannabis (Heritage Cannabis Stock Quote, Chart, News CSE:CANN) received a major target drop from PI Financial’s Devin Schilling on Tuesday after the company’s delivered its latest earnings. Schilling cited COVID-19-related headwinds while at the same time the analyst kept the faith with CANN by sticking to his “Buy” rating. Toronto-headquartered Heritage owns two licensed producers in Voyage Cannabis and CannaCure along with an extraction business in Purefarma Solutions. The company reported its second quarter fiscal 2020 results on June 29 for the period ended April 30, 2020, showing revenue of $0.9 million, down from $4.0 million for the previous quarter, and an EBITDA loss of $2.0 million. Corporate and operational highlights over the quarter included a new term loan agreement for $6.7 million, industrial hemp production licenses from Health Canada for CannaCure and Voyage as well as a cannabis oil sales license for Voyage. Up ahead, Heritage’s newly-launched branded products line (including vape cartridges and tinctures) is expected to begin in July and start with a sales focus on Western provinces BC, Alberta and Manitoba. Management attributed the drop in revenue to both lower order activity levels in its existing contracts and delays in signing new agreements due to the COVID-19 pandemic. Heritage ended the quarter with $5.3 million in cash and short-term investments and working capital of $13.1 million. “During this time, the Company took significant steps to ensure the continued strength of our balance sheet which we believe will support the Company through to actively launching our own branded products in July. Management is confident that this launch, as well as additional potential contract manufacturing agreements, will lead to significantly improved revenue numbers in the future,” said CEO Clint Sharples in a press release. In his report, Schilling rated the quarter as having a ‘Negative’ impact on the company and stock, as the results were below expectations. The $0.9-million top line was below Schilling’s $2.9-million forecast and the consensus $6.4 million, while the EBITDA loss of $2.0 million was lower than the analyst’s forecast of negative $0.7 million. Schilling cited decreased orders from Heritage’s vape pen contract with industry heavyweight Cronos Group (a two-year contract with an annual potential value of $35 million) as an issue, along with margin compression due to COVID-19-related production inefficiencies. At the same time, Schilling said the launch of its own branded products will better position Heritage to control its own destiny. “Due to the current challenging operating environment, we do not believe the full potential value of will be reached,” Schilling said. “The company’s branded products are expected to hit shelves in July which would make Q4 the first full quarter of contribution from this new segment (Q3 ends July 31st).” “Our FY21 revenue estimate is reduced by 52 per cent on the back of reduced expectations from the Cronos contract and the company’s transition into branded products. Heritage is in the process of introducing its own branded products which we believe will better position the company for longer-term success. Gaining market share will take time in this crowded marketplace but we believe Heritage’s expected price point and product quality will be well received,” Schilling wrote. The analyst’s “Buy” rating now comes with a target of $0.30 (previously $0.60), which at press time represented a projected 12-month return of 114 per cent.