Medical and adult-use cannabis company WeedMD (WeedMD Stock Quote, Chart, News TSXV:WMD) received a target cut from Mackie Research analyst Greg McLeish on Monday, after the company reported third quarter numbers which nonetheless beat McLeish’s top and bottom line estimates. Based in Aylmer, Ontario, WeedMD owns and operates two facilities for indoor and outdoor grow and has extraction and processing facilities as well. The company reported its Q3 on November 29 while at the same time announcing the acquisition of licensed cannabis company Starseed Holdings and a related $25-million equity investment from the Labourers’ Pension Fund of Central and Eastern Canada, Starseed’s strategic investor. For the quarter, ended September 30, 2019, WeedMD reported net revenues of $6.6 million, up from $2.0 million a year earlier, with a gross margin of 29 per cent and an EBITDA loss of $2.0 million, down from $0.7 at the end of the previous quarter. “In the third quarter, WeedMD was focused on scaling production at our greenhouse and outdoor cultivation operations. Our cultivation costs are among the lowest in the industry at approximately $0.16 per gram for outdoors and $0.72 per gram for greenhouse cultivation,” said Nichola Thompson, CFO of WeedMD, in a press release. “With our extraction hub, CX Industries Inc., we are ready to process low-cost, quality cannabis to create an assortment of high-margin finished products which will significantly add to our top line, contributing to anticipated positive EBITDA in 2020.” For his part, McLeish was forecasting Q3 revenue and EBITDA of $6.3 million and negative $2.5 million, respectively. WeedMD managed a net loss for the quarter of $13.4 million or $0.12 per share, whereas the analyst was calling for a net loss of $3.8 million or $0.03 per share. McLeish attributes the difference to a $9.7-million expense related to realized fair value amounts included to inventory sold and an unrealized loss on changes in fair value of biological assets. “WeedMD’s first outdoor harvest was a success,” writes McLeish. “The over 20,000 plants that were grown at the company’s Strathroy, Ontario outdoor facility yielded more than 8,000 kg of saleable cannabinoid-rich biomass.” Concerning the Starseed acquisition, the all-share transaction values the company at an enterprise value of $61 million after accounting for the company’s $17 million on its balance sheet. The company has a partnership with Canada’s largest construction union, the Labourers’ International Union of North America, to provide medical cannabis as a fully-covered drug benefit for its members on a preferred basis. Starseed has secured other partnerships with payer groups and unions and, McLeish says, will have more to come in 2020. The deal is a good one for WeedMD, McLeish thinks, as it will alleviate bottlenecks with the company’s current supply chain and accelerate its ability to get products to market. “The transaction will bolster the company’s leadership position in the medical cannabis market through Starseed’s exclusive distribution and patient channels and the concurrent financing will further strengthen WeedMD’s balance sheet,” writes McLeish. The analyst has shifted his full-year 2019 estimates down, now calling for revenue and EBITDA of $25.8 million and negative $8.4 million, respectively. For 2020, he is expecting revenue and EBITDA of $105.8 million and $15.6 million, respectively. With the Monday update, McLeish maintained his “Buy” rating while lowering his target price from $3.25 to $2.25, which represented a projected return of 142 per cent at the time of publication.