In a Feb. 19 research note, analyst Andrew Semple reported that Echelon Capital Markets increased its target price on Columbia Care Inc. (CCHW:CSE; CCHWF:OTCMKTS) to CA$14 per share from CA$13.50 "due to a slight increase to our 2021 and long-term estimates based on the solid operational progress we are seeing." The current share price is about CA$8.70.
Also, Semple highlighted, the company "is overdue for a catch-up rally" and, thus, now offers an attractive entry point.
The analyst presented the several recent developments that have been "highly encouraging for the outlook on this New York-based cannabis company. He added that "these catalysts should help it achieve accelerated growth in 2021, possibly leaving our nearly Street-high 2021 financial forecasts too conservative."
One, Columbia Care's Florida sales have picked up speed and are expected to continue accelerating this year. In Q4/20 vs. Q3/20, extract sales volume was 274% higher and dried flower volume was 75% higher. Q1/21 sales are proving even better than those of Q3/20, with extract volume averaging 486% higher and dried flower volume averaging 106% higher.
"This encouraging data support our higher financial forecasts, with the company clearly demonstrating it is capable of succeeding in the Florida cannabis market," Semple indicated.
Two, Columbia Care's SWC-branded dispensaries in Tempe and Prescott, Ariz., transitioned to adult-use cannabis sales in late January, months earlier than expected. This shift should generate higher revenue. Also, the company is expanding its cultivation/processing capacity in the state.
Three, Columbia Care was awarded six medical dispensary licenses in West Virginia, including five retail licenses going directly to it and one license going to Green Leaf Medical, which Columbia is in the process of acquiring. Though a smaller market, West Virginia will contribute to overall profitability.
"Columbia Care is one of only two publicly traded companies to be awarded licenses for each category in West Virginia, including cultivation, processing and retail, allowing it to become vertically integrated in this state," Semple noted.
Four, Virginia seems well on its way to legalizing adult-use cannabis; "the Assembly and the Senate each passed their own versions of adult-use cannabis legalization on February 5," the analyst noted. Sales there may be a significant opportunity for Columbia Care.
Five, the company's acquisition of The Healing Center San Diego closed. "While smaller in scale, this acquisition is immediately accretive to Columbia Care and supports its revenue/profitability ramp in 2021," Semple commented.
Six, the company was granted a provisional license for adult-use sales at its downtown Boston dispensary, and anticipates receiving a final license and approval in the coming months.
Semple pointed out that Columbia Care just completed rounds of debt and equity financings, the latest of which was for CA$25M of equity. Echelon models the company having about $110 million of excess capital, available for mergers and acquisitions (M&A) activity this year.
Lastly, Semple concluded that Columbia Care is much better positioned today and as such, no longer warrants its current valuation. The company closed two acquisitions, TGS and Project Cannabis. It reached positive EBITDA in Q3/20. It expanded operations and now has leading positions in Colorado, California, Pennsylvania, Ohio, Maryland and Virginia. It bolstered its balance sheet, generating funds for further M&A.
"We believe this progress warrants a revaluation towards the large cap U.S. operator peer group average," Semple wrote.
Echelon has a Speculative Buy rating on Columbia Care.[NLINSERT]
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Disclosures from Echelon Wealth Partners, Columbia Care Inc., February 19, 2021
Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
I, Andrew Semple, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
Is this an issuer related or industry related publication? Issuer.
Does the Analyst or any member of the Analyst’s household have a financial interest in the securities of the subject issuer? No
The name of any partner, director, officer, employee or agent of the Dealer Member who is an officer, director or employee of the issuer, or who serves in any advisory capacity to the issuer. No
Does Echelon Wealth Partners Inc. or the Analyst have any actual material conflicts of interest with the issuer? No
Does Echelon Wealth Partners Inc. and/or one or more entities affiliated with Echelon Wealth Partners Inc. beneficially own common shares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issued and outstanding shares of the issuer? No
During the last 12 months, has Echelon Wealth Partners Inc. provided financial advice to and/or, either on its own or as a syndicate member, participated in a public offering, or private placement of securities of this issuer? Yes
During the last 12 months, has Echelon Wealth Partners Inc. received compensation for having provided investment banking or related services to this Issuer? Yes
Has the Analyst had an onsite visit with the Issuer within the last 12 months? No
Has the Analyst or any Partner, Director or Officer been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months? No
Has the Analyst received any compensation from the subject company in the past 12 months? No
Is Echelon Wealth Partners Inc. a market maker in the issuer’s securities at the date of this report? No