WeedMD Inc (CVE:WMD) (OTCQX:WDDMF) (FRA:4WE) offers a unique medical cannabis strategy that has secured preferred access to around 350,000 patients while sharing in the upside potential of the Canadian adult-use market.
That's the view of broker Canaccord, which has started covering the stock with a 'Speculative Buy' stance and a C$0.60 price target (current price C$0.37).
READ: WeedMD closes previously announced bought-deal offering for aggregate gross proceeds of $17,250,000, including full exercise of over-allotment option
WeedMD is the publicly-traded parent company of WeedMD Rx Inc and Starseed Holdings Inc, both of which are Canadian federally licensed producers (LPs) and distributors of cannabis products under the Cannabis Act.
It owns, leases, and operates a 158-acre property in Strathroy, Ontario, a 26,000 square foot indoor facility in Aylmer, Ontario, and a 14,850 square foot indoor facility, also in Ontario that focuses on product research, processing, and fulfillment.
Significantly, it has also coupled with a strategic partner in LiUNA pension fund of Canada, which holds an approximate 29% stake, which offers access up to a potential 500,000 plus union members across North America.
Canaccord analysts wrote: "The company has established a unique direct-to-patient reimbursable distribution platform that offers a >75% price premium to traditional recreational sales and a sticky client base.
"The medical channel as a whole has been underappreciated by large-cap LPs, in our view, which offers WMD a first-mover advantage in building out the platform, particularly as it has secured multiple unions and payer groups that give it preferred access to up to ~350,000 patients (as the company signs on additional LiUNA localities)."
The broker noted that although management "is still actively pursuing new relationships, focus has now shifted to increasing patient adoption rates, which should drive profitable growth for the segment".
Thus far, limited product diversity has led to modest exposure for WeedMD in the Canadian recreational market, says the broker, but its products have gained attention after winning Sativa Flower of the Year at the 2020 KIND awards.
"We believe continued product diversification (with hash, live resin and rosin expected in H1/20), along with new manufacturing partnerships and sales representatives, will support increased recreational market penetration throughout FY21."
Canaccord sees the cannabis group delivering positive top-line and profitability trends in full year 2021 at around C$51.3million of net revenue and C$6.9 million in adjusted earnings before interest, tax, depreciation and amortization (EBITDA).
Analysts also highlighted that the company is well capitalized, with around C$31 million of cash as of its last quarter, and had recently raised an additional C$17.3 million approximately.
Contact the author at giles@proactiveinvestors.com