ATB Capital Markets analyst Frederico Gomes likes what he sees out of Khiron Life Sciences (Khiron Life Sciences Stock Quote, Charts, News, Analysts, Financials TSXV:KHRN), maintaining a “Speculative Buy” rating and $0.60/share target price for a 243 per cent return projection in a recent update to clients. Khiron Life Sciences is a vertically integrated global medical and CPG cannabis leader with core operations in Latin America and Europe, along with distribution throughout various countries in Latin America and activity in North America and Europe. The company is licensed in Colombia for the cultivation, production, domestic distribution and international export of both low and high THC medical cannabis products from Colombia to the UK, Peru, Uruguay and Brazil. The latest analysis from Gomes comes after the company released its first quarter financial results for the 2022 fiscal year which Gomes noted to be above expectations, although he still made forecast revisions for the rest of the year. “While Q1/22 results were positive and showcase the success of KHRN’s demand-focused strategy, we remain wary of the risks stemming from the Company’s tight capital position,” Gomes said in his May 31 report. “We believe KHRN may have to rely on additional financing sources over the near term to bridge to profitability.” Khiron’s quarter was headlined by $4.6 million in revenue for 28 per cent sequential growth to come in slightly ahead of the ATB estimate of $4.4 million, with the beat being entirely attributable to medical cannabis, which came in at $2.7 million (ATB forecast $2.4 million) to account for 61.4 per cent of the company’s revenue mix, with service revenue accounting for the rest. The company’s adjusted gross profit of $2.1 million matched the ATB projection, though the revenue beat meant the gross margin came in at 46 per cent, slightly lower than the 48.2 per cent margin set out by ATB. Meanwhile, the company’s adjusted EBITDA loss was slightly softer than expected at $3.1 million, given that ATB projected a $4.7 million loss, with Gomes attributing the beat to better control over SG&A costs. “Our unique approach will continue to generate double-digit revenue and gross profits quarter over quarter in markets poised to become significant in the coming years,” said Khiron CEO and Director Alvaro Torres in the company’s May 31 press release. “Our focus is to leverage the infrastructure we have built to continue driving sales in our target markets while maintaining discipline in our expenses so we can achieve profitability in the near future, and then continue to look for more growth opportunities in Latin America and Europe." Since the end of the quarter, Khiron announced the acquisition of Pharmadrug GmbH, which has been a manufacturer and wholesaler of medicinal products and active pharmaceutical ingredients in Germany for 40 years, for total consideration of $2 million, with management believing the acquisition will help drive sales growth and margin expansion in Europe, according to Gomes. In addition, since the release of the financial results, Khiron announced an overnight broker offering of 26.7 million company units at $0.15/unit, which includes one common share and one common share purchase warrant at $0.20/share with a two-year exercise period. Despite the solid first quarter results, Gomes reduced hiw revenue estimates for Khiron moving forward, with his 2022 revenue target down from $24.2 million to $23.1 million for a potential year-over-year increase of 80.5 per cent, followed by a potential doubling to $46.3 million (previously $51.7 million) in 2023. From a valuation perspective, Gomes forecasts Khiron’s EV/Revenue multiple to drop from the reported 2.5x in 2021 to a projected 1.4x in 2022, then halving to a projected 0.7x in 2023. On the margins, Gomes slightly lowered his gross profit projection in 2022 from $12.5 million to $11.5 million, with the corresponding margin projection dropping from 51.9 per cent to 49.8 per cent. Gomes’ 2023 projections produce a similar story, with the gross profit margin projection dropping from 54.8 per cent to 54.5 per cent. Gomes improved his adjusted EBITDA projections for Khiron, limiting the loss forecast for 2022 to $7.2 million instead of $13 million, with an expectation for a positive turn of $0.6 million in 2023 instead of a $6.7 million loss. Looking ahead, Gomes believes Khiron has a promising future on account of continued sales growth in Europe, along with expanding its distribution in Colombia with new clinics and improvements in patient conversion and retention. “In our view, Khiron will continue to sustain an attractive medical cannabis margin profile due to the Company’s focus on building demand, developing relationships with doctors, and building goodwill with patients and healthcare providers,” Gomes said. “However, we expect Khiron’s medical cannabis gross margin to slowly decline over time as the competitive environment evolves.” Khiron’s stock price has crumbled to a 41.7 per cent loss since the start of 2022, falling off after hitting a 2022 high of $0.27/share on April 13, dropping as low as $0.12/share on May 12.