Columbia Care: Updated Estimates Prior to Acquisition by Cresco Labs
The analyst
Columbia Care is being acquired by Cresco Labs CRBLF, in a deal expected to close by the end of the year. In a research note published Thursday, Cantor Fitzgerald's Pablo Zuanic maintained an overweight rating for CCHWF with a price target of $8.37.
“Due to the agreement with Cresco; our price target of $8.37 is based on our PT for Cresco, using the swap ratio of 0.5579. (...) Our updated model feeds our Cresco pro forma projections from 01/01/23. Our latest published price target for Cresco is $15. If we take the exchange rate of 0.5579, it equals $8.37," Zuanic said.
On the heels of President Joe Biden's announcement Thursday to pardon all federal marijuana possession convictions, Cresco's stock price soared.
The thesisZuanic noted that on 10/6, Cresco was trading at $3.30 and Columbia Care at $1.75. Based on its CY23 estimates (8% below FactSet consensus on sales and 29% below on EBITDA), Columbia Care is trading at 2x CY23 sales and 12.5x EBITDA compared to the MSO average of 2 .2x and 8.9x, respectively.
Risk analysisAccording to Zuanic, like other US MSOs, "macroeconomic risks are primarily regulatory in nature, with the pace of deregulation at both the state and federal levels playing a key role in bullish investing for MSO stocks."
In terms of business risk, given the pending deal with Cresco, Zuanic pointed out that "the stock is tied to Cresco's stock price and the likelihood that the agreement will be concluded within the set deadlines".
Regarding operational risk, Zuanic said, "the company has above-average exposure to more mature markets (yes, it also has exposure to NJ and several markets east coast likely to legalize), so there is a risk to sales growth estimates if new recreational markets do not develop as expected and/or if medical markets do not transition to leisure within the timeframe expected by investors."
Improve profitabilityWhile improving profitability is a key part of the stock's bullish pitch, Zuanic explained that the stock "could be hit by disruptions as the company integrates all three recent acquisitions, or if the economy in the smaller states becomes less favorable.
"Margin expansion is a major part of the re-rating story, and the combination of execution risk (because it extends the culture) and integration of new assets (G-Leaf, others) could impact the company's ability to offer upside margin (this is partly why our 2022 margin assumptions are 4 points lower than the FactSet consensus)” , concluded Zuanic.
Image by Ilona Szentivanyi.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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Columbia Care is being acquired by Cresco Labs CRBLF, in a deal expected to close by the end of the year. In a research note published Thursday, Cantor Fitzgerald's Pablo Zuanic maintained an overweight rating for CCHWF with a price target of $8.37.
“Due to the agreement with Cresco; our price target of $8.37 is based on our PT for Cresco, using the swap ratio of 0.5579. (...) Our updated model feeds our Cresco pro forma projections from 01/01/23. Our latest published price target for Cresco is $15. If we take the exchange rate of 0.5579, it equals $8.37," Zuanic said.
On the heels of President Joe Biden's announcement Thursday to pardon all federal marijuana possession convictions, Cresco's stock price soared.
The thesisZuanic noted that on 10/6, Cresco was trading at $3.30 and Columbia Care at $1.75. Based on its CY23 estimates (8% below FactSet consensus on sales and 29% below on EBITDA), Columbia Care is trading at 2x CY23 sales and 12.5x EBITDA compared to the MSO average of 2 .2x and 8.9x, respectively.
Risk analysisAccording to Zuanic, like other US MSOs, "macroeconomic risks are primarily regulatory in nature, with the pace of deregulation at both the state and federal levels playing a key role in bullish investing for MSO stocks."
In terms of business risk, given the pending deal with Cresco, Zuanic pointed out that "the stock is tied to Cresco's stock price and the likelihood that the agreement will be concluded within the set deadlines".
Regarding operational risk, Zuanic said, "the company has above-average exposure to more mature markets (yes, it also has exposure to NJ and several markets east coast likely to legalize), so there is a risk to sales growth estimates if new recreational markets do not develop as expected and/or if medical markets do not transition to leisure within the timeframe expected by investors."
Improve profitabilityWhile improving profitability is a key part of the stock's bullish pitch, Zuanic explained that the stock "could be hit by disruptions as the company integrates all three recent acquisitions, or if the economy in the smaller states becomes less favorable.
"Margin expansion is a major part of the re-rating story, and the combination of execution risk (because it extends the culture) and integration of new assets (G-Leaf, others) could impact the company's ability to offer upside margin (this is partly why our 2022 margin assumptions are 4 points lower than the FactSet consensus)” , concluded Zuanic.
Image by Ilona Szentivanyi.
© 2022 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
CANNABIS BENZINGA CONFERENCEMeet the biggest players in the cannabis industry and strike deals that will drive the industry forward.
Featuring live company presentations, insider panels and unparalleled access to networking, the Benzinga Cannabis Capital Conference is where cannabis executives and entrepreneurs meet .
Join us September 13-14, 2022 at The Palmer House in Chicago, IL.
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