US cannabis micro-cap play Ionic Brands (Ionic Brands Stock Quote, Chart, News, Analysts, Financials CSE:IONC) has made a ton of progress so far in 2021, says Clarus Securities analyst Noel Atkinson, who updated clients on the company on Wednesday. Atkinson renewed his “Buy” rating for the stock and $0.45 target, saying Ionic’s expansion plans in Washington and Oregon are looking good. Cannabis wholesaler and branded products company Ionic Brands delivered its fourth quarter 2020 results on Tuesday, reporting $1.7 million in revenues and negative $0.3 million of adjusted EBITDA, both of which were below Atkinson’s estimates at $2.3 million and negative $0.1 million, respectively. Atkinson said Ionic’s quarter was impacted by limited availability of working capital to buy inventory inputs in order to fill sales orders. (All figures in US dollars except where noted otherwise.) At the same time, Atkinson remarked on the corporate transformation that has taken place with Ionic over the past six months, which includes the acquisition of Washington State-based cannabis producer Cowlitz for C$32 million, the restructuring of over 90 per cent of Ionic’s subordinated convertible debentures into preferred shares and a C$14.2-million equity raise. Ionic has also recently moved into its new Washington facility with indoor cultivation, extraction and manufacturing capabilities, which at 46,000 sq ft is much larger than its prior facilities and will be used to produce premium flower for its in-house brands. The company has also acquired a 6,000 sq ft fully-licensed and well-equipped production facility in Estacada, Oregon, to bring Ionic’s extraction and manufacturing of vape carts and concentrates in-house. Atkinson said he’s less interested in the Q4 2020 results — as they were prior to the Cowlitz acquisition and equity raise — and is waiting on the company’s first quarter 2021 financials, due in the next couple of weeks. “Ionic has been making significant strides to increase the scale of its operations in the Pacific Northwest,” Atkinson wrote. “The first was the acquisition of Cowlitz County Cannabis in early March 2021, which added one of Washington’s largest wholesale producers of flower and pre-roll products. Cowlitz historically purchased its flower inputs from licensed cultivators across the state and focused its in-house operations on processing and packaging.” “Between Cowlitz and the new main Ionic facility, Ionic’s operations in Washington should now have more than sufficient capacity to become perhaps the largest wholesale operator in the state, or when interstate sales are eventually permitted (once cannabis is federally legalized and state regulators allow cross- border shipments) Ionic can start wholesaling into other states,” he said. In Oregon, Atkinson said Ionic currently sells into about 65-70 dispensaries but the analyst expects that number to grow substantially as the company scales up its in-house vape cart and concentrate production via its new Estacada facility. By the numbers, Atkinson is now calling for Ionic Brands to generate first quarter 2021 revenue and adjusted EBITDA of $3.4 million and negative $0.4 million, respectively. For the full 2021, Atkinson is forecasting revenue and EBITDA of $24.3 million and $3.9 million, respectively, and for 2022 revenue and EBITDA of $37.6 million and $10.7 million, respectively. Ionic Brands saw its share price drop hard after debuting on the CSE in early 2019, going from around $4 to start in April to $0.20 by October. Since then the stock has mostly been treading water, but Atkinson sees upside from here. At press time, Atkinson’s $0.45 target represented a projected return of 260 per cent. Atkinson sees Ionic to be trading at a discount to its US cannabis peer group, with Ionic trading at 9.9x 2021 EV/adjusted EBITDA and 3.6x 2022 EV/adjusted EBITDA compared to its peers at 91.0x and 6.5x, respectively. The analyst said Ionic’s closest match would be SLANG Worldwide, which also focuses on production and has no retail operations and generates revenue from two open-license, adult-use states, Colorado and Oregon. Atkinson has SLANG to be currently trading at over 239x 2021 EV/adjusted EBITDA and 9.2x 2022 EV/adjusted EBITDA. On the overall cannabis market, Atkinson added in his update that he expects interest in the US sector, with a boost to valuations across the board, later in the summer as federal Democrats begin to move forward on a comprehensive cannabis decriminalization and social justice bill. Atkinson wrote, “We ultimately expect such a significant bill (to be championed by the Senate Majority Leader roughly 12 months before mid-term elections) to be stymied by Republicans in the Senate, but the key items of the SAFE Banking Act bill (removal of banking, insurance and payment processing restrictions on cannabis companies, employees and vendors, as well as setting up for the potential elimination of the punitive federal income tax clause known as Section 280e) may ultimately get passed in late 2021 as part of a FY2022 budget reconciliation bill.” “In our opinion, passing the SAFE Banking Act items and keeping cannabis federally illegal (for now) would be a Goldilocks scenario for most U.S. cannabis companies,” he wrote.