BioTuesdays

AGP starts coverage of 4 cannabis companies at buy

Alliance Global Partners launched coverage of four cannabis companies – Acreage Holdings (CSE:ACRG; OTCQX:ACRGF), GrowGeneration (OTCQX:GRWG), Village Farms International (TSX:VFF) and Green Thumb Industries (CSE:GTII) – with “buy” ratings.

Analyst Aaron Grey writes that he likes the focused strategy at Green Thumb on executing in markets where the company believes it has a strategic advantage, such as its strong positioning in the Pennsylvania and Nevada markets. 

“In addition to strong top-line trends, the business model has now inflected to profitability, which margins we expect to expand as the company scales the business,” he added.

Mr. Grey set a price target of $23 (Canadian) on Green Thumb. The stock closed at $13.72 on Sept. 18.

Mr. Grey said he believes Village Farms presents an attractive investment opportunity as the company has positioned itself to be one of the leading cultivators in the Canadian market through its Pure SunFarms joint venture.

“Having demonstrated its ability to grow at scale the past two quarters, while putting up best in class margins, we believe Village Farms will benefit from the growing Canadian market, particularly with the recent receipt of its packaging license,” he added. In addition, “we see the U.S. CBD/hemp opportunity as upside to our numbers.” 

His price target for Village Farms is $26. The stock closed at $13.95 on Sept. 18.

“We believe that GrowGeneration presents an attractive ancillary play in the burgeoning cannabis industry as a leading hydroponics retailer in the U.S., with a strong top-line story (on-track to double revenues for the fourth straight year) through organic store growth and tuck-in acquisitions,” Mr. Grey said. 

In addition, he said that with GrowGeneration’s 9% EBITDA margin in the second quarter of 2019, “we believe the company has proven its ability to grow the business while generating profit,” with further margin enhancement opportunities ahead. 

Mr. Grey’s price target for GrowGeneration is $8 (U.S.). The stock closed at $5.10 on Sept. 18.

Mr. Grey expects Acreage Holdings to become profitable over the next 12-to-18 months, citing new store openings, the building out of its wholesale business and integration of Form Factory “to drive top-line trends going forward.”

In addition to fundamentals, he views the company as “attractively priced, given that it trades 50% below the implied price from the Canopy Growth deal, as we see a high likelihood of the STATES Act passing over the 7.5-year period and acting as a trigger event for the acquisition.”

Mr. Grey set a price target of $15 for Acreage Holdings. The stock closed at $8.26 on Sept. 19.

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