Marijuana producer WeedMD (CVE:WMD) (OTCMKTS:WDDMF) is 'well-positioned' heading into 2019 to capture market share in Canada as well as internationally, wrote analysts at Haywood Securities at the tail-end of last year.
More recently, another broker, Eight Capital, said the firm was keeping up with changes as the marijuana industry evolves. Both brokers rated its shares a Buy.
WeedMD produces cannabis and cannabis oil for both the medical and adult-use markets and operates two growing facilities.
Products include medical marijuana, including dried marijuana, cannabis oil, cannabis resin, marijuana plants, and marijuana seeds in Canada.
And the company certainly appears to have started the new year with plenty of gusto, increasing its production capacity and striking new partnerships.
The company has what it calls a "multi-channelled" distribution strategy that includes supply agreements with Shoppers Drug Mart - the large Canadian pharmacy chain, along with provincial distribution agencies, as well as strategic relationships across the seniors' market in Canada.
Boosting production capacity
In early January this year, the licensed producer said that it had boosted capacity at its Strathroy, Ontario, greenhouse to 110,000 square feet (sq ft) but this is expected to rise to over 550,000 sq ft early in 2019.
The increase came after it added six additional grow rooms to the greenhouse after earlier receiving approval from Health Canada for a license amendment that allowed it to expand production into six 10,000-sq ft cultivation rooms.
The company also has a 26,000 sq ft indoor facility in Aylmer, Ontario - making a total of 136,000 square feet.
Solid third quarter results
In November last year, WeedMD posted three months results, which Haywood saw as "in-line" with expectations and showing "solid execution" versus some of its peers.
"WeedMD reported revenues of $2.0M, up 461% over its Q3/17 sales and slightly below our $2.2M estimate," said analyst Neal Gilmer.
"The company reported an adjusted operating loss of $1.4M, better than our expectations for an adjusted EBITDA loss of $1.8M. The company currently has approximately $5.4M in inventory, up approximately 54% compared to Q2/18."
He added: "We expect solid sales growth in Q4/18 as a result of initial adult-use sales, however, we are lowering our projections due to delays in approval of expanded production."
An attractive investment?
The broker reckons WeedMD is an "attractive" investment for investors looking for exposure in the small-cap cannabis landscape in Canada.
"Compared to some of its peers, we believe that its management has demonstrated solid execution of its operations, within the Health Canada constraints, delivering more than $5M in sales in the first nine months of this year," said Gilmer, who repeated a 'buy' recommendation on the shares.
"We also highlight that management has executed while keeping operating expenses to a very reasonable level, demonstrating strong financial stewardship.
"Overall WeedMD is well-positioned heading into 2019 to capture market share in Canada as well internationally, as demonstrated through its recent announcements."
The broker said it valued the firm on a multiple of 12 times' enterprise value (EV) to EBITDA on Haywood's full-year 2020 estimates, discounted by 15%.
The most significant investment risks, said the broker, include its reliance on Health Canada to grow and process cannabis and oils to sell, and the strong competition within the medical cannabis market in Canada. The company also needs to execute on its oil extraction facility and new expansion plans, which are susceptible to time and budget risks.
Already making progress in 2019
In January, WeedMD said it had become the first licensed producer on the planet to include a cannabis strain authenticity and tracking platform into its sales program.
The firm said it, along with Blockstrain Technology Corp, had completed an industry 'first-of-its-kind' cannabis strain validation registration program.
"The program ensures the authenticity of cannabis strains and is a unique differentiator to WMD's large genetics bank," said Eight Capital.
"As products continue to evolve and become more complex, we see value in this technology in order to ensure customers are in fact purchasing products as advertised."
Also in the field of sales, WeedMD this month, said it was teaming up with Pita Pit Canada to launch Pioneer Cannabis Corp, a retail services provider.
Pioneer will help retailers identify locations as well as providing assistance with licensing and security processes; point-of-sale and payment systems; marketing services; and training platforms.
It has also added the Manitoba Liquor and Lotteries Corp to its cannabis supply distribution network.
The Manitoba agreement is the group's sixth supply agreement. The company has also, as referred to earlier, signed deals with Ontario, Alberta, British Columbia, Nova Scotia and Shoppers Drug Mart.