The Analyst
Columbia care is acquired through Cresco Laboratories CRBLF, in a deal to be finalized by the end of the year. In a research note by Cantor Fitzgerald published Thursday Pablo Zuanic held overweight valuation to the CCHWF with a target price of $8.37.
“Due to the Cresco deal; Our price target of $8.37 is based on our PT for Cresco using the exchange ratio of 0.5579. (…) Our updated model feeds into our 1/1/23 Cresco pro forma projections. Our most recently published target price for Cresco is $15. If we take the deal exchange ratio of 0.5579, that equates to $8.37,” Zuanic said.
Following President Joe Biden’s announcement Thursday that he would pardon all state convictions for marijuana possession, Cresco’s share price soared.
The thesis
Zuanic noted that Cresco on 6.10. traded at $3.30 and Columbia Care at $1.75. Using its CY23 estimates (8% below FactSet consensus on revenue and 29% below EBITDA), Columbia Care is reported at 2x CY23 revenue and 12.5x EBITDA versus the MSO average of 2.2 and 8.9 traded respectively.
risk analysis
According to Zuanic, as with other US MSOs, “macro risks are primarily regulatory in nature, with the pace of deregulation at both the state and federal levels playing a key role in the investment potential of MSO stocks.”
Regarding business risksIn light of the upcoming deal with Cresco, Zuanic stressed that “the stock is tied to Cresco’s stock price and the likelihood of closing the deal within the set timeline.”
Regarding operational risks, Zuanic said, “The company has above-average exposure to more mature markets (yes, it also has exposures to NJ and several East Coast markets that are likely to be legalized), so there is a risk to revenue growth estimates if new itself.” leisure markets do not develop as planned and/or if med markets do not transition to leisure in the timeframe expected by investors.”
improving profitability
Although improving profitability is a key component of the bull case for the stock, Zuanic explained that the stock “…
