Echelon Capital Markets analyst Andrew Semple is feeling a bit more cautious in regards to US cannabis play Columbia Care (Columbia Care Stock Quote, Chart, News, Analysts, Financials CSE:CCHW), maintaining a “Buy” rating for the company while dropping his target price from C$10/share to C$8/share for an implied one-year return of 217 per cent in an update to clients on Monday. New York-based Columbia Care cultivates, manufactures and provides cannabis-based health and wellness solutions and derivative products through its 99 dispensaries and 32 cultivation facilities. Columbia Care sells its products under the brands the Cannabist, Seed & Strain, Triple Seven, gLeaf, Classix, Press, Amber and Platinum Label Cannabidiol. Semple’s report comes after Columbia Care released its first quarter financial results for the 2022 fiscal year, which he noted to be mixed with headlining revenue of $123.1 million for a sequential decrease of 11.6 per cent, missing on the Echelon target of $141.7 million on account of a decrease in low-margin bulk wholesale revenue, though Semple also noted a benefit to the company’s gross margin, which was reported at 46 per cent for the quarter, an improvement of approximately 150 bps on account of an increased allocation of the company’s products to its own retail stores. (All figures in US dollars except where noted otherwise.) “Despite the soft quarter for both revenues and EBITDA, management reiterated their full year 2022 guidance,” Semple said. “Management remains confident in its growth pipeline through the remaining nine months of 2022, with adult-use sales in New Jersey as the primary driver. Our estimates fall slightly below management’s guidance, though we believe we are conservatively positioned and maintain room for upside should expected capacity and retail footprint expansions turn online on-schedule.” Meanwhile, Columbia Care reported adjusted EBITDA at $16.8 million, a significant miss in relation to Semple’s projection of $22.4 million. “As our recent capital investments yield enhanced efficiencies throughout the value chain, this will not only allow us to capitalize on our growth opportunities throughout the country, but continue to further improve profitability,” said Nicholas Vita, CEO of Columbia Care in the company’s May 16 press release. “As 2022 continues to unfold, our priority is on driving profitability. We expect market specific cyclicality to be surpassed by the standout growth in several key markets in our diversified portfolio. Having new, high growth markets come on line, beginning in 2Q, will provide a strong counterbalance as several maturing markets show the impact of inflationary and competitive pressures.” Going forward, Semple pointed to the expiration of the 30-day HSA Act as a significant hurdle cleared following Columbia Care being acquired by Cresco Labs, though he also noted there are still several important steps remaining before the acquisition closes, including shareholder approval and significant divestitures given the overlap between the two companies in limited license states. However, Columbia Care saw significant value in Virginia, with plenty of growth potential still in play for 2022, according to Semple. “We are continuing to value Columbia Care on a standalone basis, which does not yet reflect the current market value nor our view of the fair value of the consideration offered by Cresco,” Semple said. “We look for some of the perceived uncertainties around divestitures, regulatory approvals, and closing timelines to be better clarified before we transition our valuation to be centered on the value of CL shares to be received and the potential upside in the pro forma entity.” In the wake of the quarterly results, Semple has slightly reduced his financial projections moving forward for Columbia Care, as he now pegs 2022 revenue to come in at $601.7 million (previously $638.7 million) for a potential year-over-year increase of 30.8 per cent. Looking ahead to 2023, Semple has lowered his forecast to $764.2 million (previously $814.5 million) in revenue, estimating a year-over-year increase of 27 per cent. From a valuation standpoint, Semple sees Columbia Care’s EV/Sales multiple dropping from the reported 2.4x in 2021 to a projected 1.9x in 2022, then to a projected 1.5x in 2023 to present a discount to the target of 3.4x. Meanwhile, Semple maintained fairly flat gross margin forecasts of 47.7 per cent in 2022 and 52.2 per cent in 2023, while lowering his adjusted EBITDA projection for 2022 from $123.1 million to $109.8 million, followed by a reduction in the 2022 forecast from $220.4 million to $203.4 million. In terms of valuation, Semple forecasts the company’s EV/EBITDA multiple to dip from the reported 19.3x in 2021 to a projected 10.2x in 2022, then to a projected 5.5x in 2023 to significantly outpace the target multiple of 13x. Columbia Care’s stock price has dropped to a 34.1 per cent loss since the start of 2022, having reached a 2022 peak of US$3.31/share on February 16, though May 5 saw it close at a 2022 low of US$1.87/share.