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Mackie Research maintains Buy rating, C$4 target on WeedMD as it ‘continues to execute’ in 1Q

Analyst Greg McLeish says a recent tour of the company’s greenhouse facility at Strathroy reinforces the investment thesis

WeedMD's facility
WeedMD has secured an outdoor cannabis cultivation licence from Health Canada for its Strathroy, Ontario property

WeedMD Inc’s (CVE:WMD) (OTCMKTS:WDDMF) first-quarter earnings show the company 'continues to execute' and the investment thesis remains intact, according to Mackie Research.

“We are maintaining our Buy recommendation on WeedMD with a target price of C$4,” analyst Greg McLeish wrote in a note to clients on Friday.

The company posted first-quarter results that showed a jump in revenue as successful harvests from six additional grow rooms boosted cannabis supply.

READ: WeedMD posts 23% jump in first-quarter revenue to C$3.3 million

For the quarter ended March 2019, the Toronto-based company recorded net sales of C$3.3 million, representing a quarter-over-quarter increase of 23%.   

“Net loss was C$2.4 million, or 0.02 per share which was ahead of our net loss forecast C$4.2 million, or C$0.04 per share,” wrote McLeish.

The primary reason for the smaller-than-expected net loss was attributable to a $3.4 million gain on changes in fair value of biological assets, noted the analyst.

WeedMD sold 793 kgs of dried cannabis, representing an increase of 46% from the previous quarter.

“The company currently has C$16.9 million in cash and cash equivalents and it is fully funded for 50,000 kilograms of cannabis production capacity at its existing licensed facilities,” wrote McLeish.

Bullish thesis

WeedMD owns and operates two facilities in southwestern Ontario to produce and distribute medical-grade cannabis.

The Aylmer, Ontario facility houses 26,000 square feet of grow space on an expandable site across four acres of land, while its 158-acre Strathroy, Ontario facility includes both indoor and outdoor grow capacity.

The analyst’s bullishness stems partly from his tour of WeedMD’s 610,000 square foot greenhouse facility at Strathroy. 

“(Our) recent facility tour reinforces our investment thesis,” wrote McLeish. “The hybrid greenhouse currently has 110,000 feet of licensed production and the next 110,000 feet is ready and waiting for licensing. The company is also in the process of retrofitting a further 308,000 ft of 'traditional' greenhouse, bringing total cultivation square footage to 528,000 ft, and total annual greenhouse production capacity to more than 50,000 kg.”

The two locations are expected to yield more than 150,000 kilograms per year of cannabis once peak production is achieved in 2020, according to the company.

The analyst also observed that WeedMd’s outdoor grow could be a “potential game changer” for the company.

Secures outdoor cannabis cultivation licence

In March 2019, WeedMD announced that it had applied for an amendment to its Strathroy licence to expand beyond its existing cultivation with an initial 27-acre, large-scale, low-cost, outdoor cannabis grow operation.

WeedMD issued a press statement indicating that it has been granted approval from Healh Canada for 27 acres of low-cost, outdoor cultivation on its Strathroy, Ontario property. The company said it will start planting "more than 20,000 clones in early June with plans to harvest in fall 2019, increasing potential production output by an additional 27,000 kgs."

WeedMD secured additional provincial distribution agreements with Manitoba and Saskatchewan. Shipping to a total of six provinces across the country, the company is now able to reach about 70% of Canada’s projected adult-use market.

Contact Uttara Choudhury at [email protected]

Follow her on Twitter@UttaraProactive 

Quick facts: WeedMD Inc.

Price: 0.92 CAD

TSX-V:WMD
Market: TSX-V
Market Cap: $105.24 m
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