These two cannabis stocks both began trading on the Canadian Securities Exchange (CSE) in April and both companies have Buy ratings with price targets that are ~200% higher than their current share price!
Ayurcann Holdings Corp
Ayurcann Holdings Corp (CSE: AYUR) is an Ontario based marijuana post-cultivation company focused on providing extraction services to licensed producers in Canada and also markets and sells its own branded products. With a strong management team, growing customer base and no debt, AYUR is gearing up and taking on established players in the Canadian market like Valens and Neptune Wellness.
In May, Ayurcann partnered with Kindred Partners Inc., a cannabis brokerage firm to accelerate AYUR’s presence and gain greater access to the medical market in Canada. This partnership will help AYUR market and sell their own house medical oriented brand called Xplor which includes. products such as topicals, vapes and tinctures under its Xplor brand.
Furthermore, AYUR plans to increase its presence in the Canadian medical market through the operation of its own online marketplace. The intention behind operating a sales platform is not only to sell their own Xplor brand but to offer a fully vertical turnkey solution to their manufacturing clients. AYUR clients will be able to really focus on their biomass production and hand off the extraction, manufacturing, marketing and sales. AYUR is one of the only medical cannabis marketplaces in Canada that is offering patients access to multiple brands and producers. They believe that their edge lies in their industry leading processing and manufacturing which yield a superior product unlike any others in the market.
Price Target
Ayurcann Holdings (CSE: AYUR) has recently received a buy rating from Fundamental Research and AYUR was given a fair value price target of CAD $.71 cents per share, which would currently represent an increase of 189% from its share price of $.245 cents. According to Fundamental Research estimates, they are projecting AYUR to generate approximately $8M in revenue for FY 2021 and $16.5M in FY2022, and Fundamental Research expects AYUR to post record revenues in Q4 and should serve as an important catalyst for investors. Ayurcann currently has a 10,845 sq. ft facility whereby only 4,500 sq. ft is in operation and 2,000 sq. ft being used for storage purposes. During the second half of 2021, AYUR is expected to complete its Phase 2 construction for its facility, and would provide an additional 4,345 sq.ft and increase its yearly processing capacity to 300,000 kg per year!
Market Comparable
To look at the potential value proposition of a company, it is important to look at other market comparable within the sector and we believe a good comparable to AYUR in terms of extraction would be a company called Neptune Wellness.
Ayurcann is currently able to process a total of 200,000 kg, with an additional 100,000 kg once Phase 2 is completed, bringing AYUR’s total production capacity to 300,000 kg. Whereas Neptune Wellness is capped at a production level of only 100,000 kg, meaning AYUR has significantly higher production capacity then Neptune. On a financial basis AYUR only has a market cap of $25 million and Neptune is valued approximately $155 million. Additionally, Neptune recently announced their annual financials and as a result of poor financials, Neptune tanked. Neptune generated a total of $46M for the year, with cost of goods totaling $83 million, for a gross profit of -$36Million and loss from operating activities of $176 Million. AYUR recently posted their third quarter financials and AYUR reported a total of $4.9 Million with gross margins of $2.32 million for its 9 months ending March 31, 2021, and AYUR reported no long-term debt. We can clearly see AYUR is able to generate revenue with a healthy profit, compared to Neptune wellness whose cost of sales were almost double its revenue, resulting in a substantial loss for Neptune. It is clear that AYUR management are exceptional operators with a clear focus of its balance sheet.
The CEO of AYUR Igal Sudman stated “This quarter was a milestone for Ayurcann. We wanted to show that it can be done, a Cannabis company in Canada can operate as a profitable entity, keeping an eye on the bottom line and being responsible. We successfully oversubscribed and closed a financing which will now enable us to complete our phase 2 buildout, further increasing our ability to serve our clients and grow our revenues.”
At a market cap of ~$25 million and growing revenues with no debt, we view AYUR as an obvious winner in the cannabis extraction industry.
Gage Growth Corp.
Over the last year, many investors flocked to cannabis companies in the United States as more and more states become legalized. Sales initiation and dramatic growth numbers across various states present an opportunity in cannabis companies state side. One cannabis company located in the United States that we are tracking in 2021 is the newly listed Gage Growth Corp which listed on the CSE in early April.
Gage Growth Corp. (CSE: GAGE) is a high quality, vertically integrated cannabis player. A well recognized cannabis retailer in its home state of Michigan, GAGE operates a total of 8 adult-use cannabis locations with two stores that are operating under the famous Cookies brand. GAGE anticipates that it will open and operate more than 20 dispensaries by the end of 2021. Management also estimates that as of December 2021, GAGE will have a total production footprint of approximately 250,000 sq.ft, with monthly production estimated to be approximately 7,000 pounds of high grade cannabis flower per month. This would equate to a whopping 84,000 pounds or 38,000 kgs of cannabis on a yearly basis!
The Michigan cannabis market is a rapidly growing market. With an estimated market size worth USD $3.2 billion, as reported by recent research conducted by Anderson Economic Group. The report also stated that approximately 1 in 5 residents in the state of Michigan have consumed cannabis in 2020, which resulted in an estimated $1 billion in sales for the year of 2020.
Gage Growth Corp has partnered with some of the biggest names in the cannabis industry when the company partnered with premier cannabis company Cookies, which is owned and operated by successful rapper and canna-preneur, Berner. The Cookies brand is known for its high quality and is a brand that is actively sought out for, and now GAGE has recently partnered with one of the world’s largest stoners and prolific rappers, Wiz Khalifa. On July 7th 2021, GAGE announced that the company has entered into an exclusive partnership with Wiz Khalifa’s cannabis brand Khalifa’s Kush. Under the agreement, Khalifa Kush and GAGE will work together to develop high quality flower, extracts, concentrates and pre-rolls and be distributed in GAGE’s retail stores across Michigan. GAGE is now the exclusive producer, processor, and retailer for all Khalifa Kush products in Michigan. Founder of Khalifa Kush, Wiz Khalifa stated, "We are excited to partner with Gage for our first expansion into the Midwest, and to finally release KK to my fans in Michigan,". Wiz Khalifa further commented "From day one of Khalifa Kush, we have only partnered with people we align with, who focus on customer and quality over everything, and Gage is one of the best”.
Partnering with some of the industry's most well-known cannabis icons and brands is a great way for GAGE to pull in new customers, as some eagerly seek out cannabis products from their favourite rappers such as Berner (Cookies) & Wiz Khalifa (Khalifa Kush).
On June 30th 2021, investment brokerage firm PI Financial began initiating coverage on GAGE and with a BUY rating and a price target of CAD $7.50 per share. PI Financial based their price target on several factors including:
Rapid expansion of retail outlets
GAGE currently operates 9 retail locations, and by the end of 2021 it is expected that the company will have a total of 20 retail outlets, and this would more than double their retail footprint.
Increased production capacity
It is expected that by FY 2021 Gage Growth Corp. will have an estimated production capacity of 7,000lbs/month and would make GAGE one of the largest cannabis cultivation companies in the State of Michigan.
Strong Retail Presence
GAGE also boasts a strong presence and consumer loyalty as consumers tend to spend twice the amount at its stores than the national average. On average, the basket size per customer in Michigan is estimated to be $84 dollars, whereas the average basket at GAGE stores was $164 in 2020.
The current price target of $7.50 by PI Financial would represent a 217% increase from its current price of $2.36
Forward Looking Statements: This article may contain "forward-looking information" (as defined in applicable Canadian securities legislation) that is based on expectations, estimates and projections as of the date of the content is published on this website. Wherever possible, words such as "anticipate", "believe", "expects", "intend" and similar expressions have been used to identify these forward- looking statements. Information in this article has been furnished for your information only, is accurate at the time of posting, and may be superseded by more current information. Except as required by law, we do not undertake any obligation to update the information, whether as a result of new information, future events or otherwise. This article should not be considered as personal financial advice. Full Disclosure: Ayurcann Holdings is a client of the parent company of EquityInsight.ca. Directors of the parent company of Equity Insight may buy, hold or sell the securities before during or after this publication.