Invictus MD Strategies Corp.’s (TSXV:GENE) near-term multiple of 9.8x is a discount to peers on a 2018E basis, which trade at a median of 16.5x
SmallCapPower | May 11, 2018: Invictus MD Strategies Corp. (TSXV:GENE) owns and operates cannabis companies in Canada. The Company produces, distributes and sells cannabis and related products for medical use. Headquartered in Vancouver, Canada, Invictus MD Strategies changed its TSX Venture ticker from ‘IMH’ to ‘GENE’ effective March 20, 2018, following the appointment of Gene Simmons, co-founder of the American rock and roll music band KISS, as its Chief Evangelist Officer.
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Invictus MD Strategies operates Acreage Pharms, AB Laboratories and AB Ventures under ACMPR licenses. Its total production of cannabis is expected to grow to more than 20,000 kg from its current run-rate of 4,000 once the scheduled expansion is completed. Also, Invictus owns an 82.5% stake in Future Harvest, a fertilizer manufacturer and supplier based in Kelowna, British Columbia.
Invictus MD Strategies stock trades at market capitalization of $153.4 million. Using the current wholesale price of ~US$1,200/lb, 4,000 kg and 20,000 kg imply near-term annual revenues of US$10.6 million, and a longer-term upside of US$44.1 million, resulting in EV/Sales multiples of 9.8x and 2.3x, respectively. GENE’s near-term multiple of 9.8x is a discount to peers on a 2018E basis, which trade at a median of 16.5x. At current levels, the Company’s stock appears attractive for aggressive investors on the back of its strong production profile, scheduled expansion of its facilities, as well as its branding efforts with reality television and rock and roll music star Gene Simmons.
Investment Thesis
- Significant presence in Canada
- Strong production profile
- Experienced management team
Significant presence in Canada
Invictus MD Strategies has three cannabis production sites in Canada under the Access to Cannabis for Medical Purposes Regulations (ACMPR) – Acreage Pharms Ltd., AB Laboratories Inc., and AB Ventures Inc. Presently, its first two sites total 95,200 square feet.
Invictus MD Strategies has a 100% ownership interest in Acreage Pharms, located in West-Central Alberta on 150 acres of buildable land. Acreage Pharms has two facilities totaling 40,000 square feet of cannabis-ready production, with its recently-completed Phase 2 expansion. Invictus MD plans to further expand the facilities in three more phases (80,000 square feet in Phase 3, 80,000 square feet in Phase 4, and 160,000 square feet in Phase 5). Phase 3 expansion is expected to be completed by 2018-end, which will increase the cannabis-ready production area to 120,000 square feet.
Invictus MD Strategies owns 50% of AB Laboratories, located in Hamilton, Ontario, which operates a 15,600 square feet purpose-built concrete and steel facility under Phase I. GENE recently acquired a 40,000 square feet production facility adjacent to the existing one under Phase 2, which is expected to be ready by mid-June 2018. AB Laboratories has its sales license for cannabis cultivation under ACMPR.
AB Laboratories has submitted a secondary license application to Health Canada in Q1 2018 for 100 acres of cannabis cultivation on a recently-acquired property under AB Ventures Inc. Invictus owns a 33.33% stake in AB Ventures for a cash commitment of $5.5 million, which will be utilized for Phase 1 facility construction of 21,000 square feet.
Apart from the cannabis-cultivation facilities, Invictus MD Strategies has an 82.5% investment in Future Harvest Development Ltd., a high-quality fertilizer and nutrients manufacturer located in Kelowna, British Columbia, which has been in operation for more 20 years under the brand Plant Life Products and Holland Secret.
Strong production profile
Invictus MD Strategies, via its cannabis sites, has 95,200 square feet of production area currently for cannabis cultivation, which is scheduled to increase to 196,200 by the end of 2018. The Company further plans to expand its production area to 520,200 square feet by 2019 year-end. In terms of per-annum production, Invictus cultivates 4,000 kg of cannabis currently, which is expected to grow to 20,300 kg once the build-up area increases by the end of 2018. Furthermore, Invictus MD Strategies estimates its cannabis cultivation could reach ~60,000 kg by the end of 2019.
Experienced management team
Invictus MD Strategies was founded by Dan Kriznic in June 2014, who previously was co-founder and CFO of Lithium-X Energy Corp. (TSXV:LIX), a lithium exploration company (which recently sold for $261 million in an all-cash transaction). Mr. Kriznic has over 10 years of leadership experience at Deloitte where he worked for both public and private companies. In March 2018, Invictus MD Strategies appointed Gene Simmons, American musician and entrepreneur, as Chief Evangelist Officer for promoting its cannabis products.
Outlook and Valuation
In terms of valuation, Invictus MD Strategies stock trades at a market capitalization of $153.4 million. Using the current wholesale price of ~US$1,200/lb, 4,000 kg and 20,000 kg imply near-term annual revenues of $10.6 million, and a longer-term upside of $44.1 million, resulting in EV/Sales multiples of 9.8x and 2.3x, respectively. GENE’s near-term multiple of 9.8x is a discount to peers on a 2018E basis, which trade at a median of 16.5x. At current levels, the Company’s stock appears attractive on the back of the Company’s strong production profile, scheduled expansion of its facilities, as well as its branding efforts with reality television and rock and roll music star Gene Simmons. Branding is expected to be a differentiating factor in the cannabis industry, where each grower’s product is similar to its competitors. Invictus MD’s association with Gene Simmons could allow it to carve out a successfully niche in an industry expected to be dominated by a few large players.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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