LOWL “is lining up to potentially be the largest cannabis cultivator in the United States,” says one analyst
Capital Ideas Media | March 5, 2021 | SmallCapPower: Whether or not you accept cannabis, there’s little doubt its legal use is here to stay. Alcohol, after all, was once prohibited in North America.
(Originally published on Capital Ideas Media on January 19, 2021)
In the June 30, 2020, edition of the Capital Ideas Digest we featured Curaleaf Holdings, Inc. (CSE:CURA) and its stock price has soared more than 138% since.
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At the time, we outlined potential upcoming catalysts for the U.S. cannabis sector, namely a ‘Blue Wave’ resulting in the Democrats winning the U.S. presidency, maintaining its majority in the House of Representatives, and taking back control of the Senate – all of which happened.
Democrats have shown their willingness to ease cannabis restrictions, having already passed legislation in the House that would protects banks and insurers from federal punishment for doing business with cannabis-related companies.
And, while U.S. cannabis legalization at the federal level is not likely to happen anytime soon (even though recreational and/or medical use is permissible in most U.S. states), banking reform could allow for eventual U.S. stock exchange listings for American cannabis businesses and institutional money flowing into the space, which would provide an even bigger boost to their stock prices.
Lowell Farms Inc. (CSE:LOWL), formerly Indus Holdings, Inc. (CSE:INDS), may be a lesser-known, U.S. cannabis stock, but it could have the biggest near-term upside according to Beacon Securities analyst Doug Cooper, who recently raised his price target on the stock from C$3 to $5 per share, suggesting potential price appreciation of more than 180% from its current level.
Mr. Cooper said California-focused Indus “is lining up to potentially be the largest cannabis cultivator in the United States,” after signing a letter of intent to lease land for cannabis production that would involve a planned buildout to between 250,000 and 320,000 sq ft of greenhouse operations that could eventually turn into nearly 1.5 million sq ft of modern mixed-light greenhouses.
The Beacon Securities analyst noted that the proposed facility would effectively make Indus the largest cultivator in California at a combined square footage of 520,000 sq ft which, in his estimation, could generate more than $200 million in revenue and about $60 million in EBITDA.
“We continue to believe that low-cost cultivation is the ultimate key to success as such costs are passed along to the consumer. While some may talk of the importance of ‘brands,’ we believe that LOW PRICE is the ultimate brand that results in significant market share. Indus has already proven this strategy though its Cypress brand and greater scale (especially in a new build) will offer even greater potential for higher yields and thus lower costs. With the potential for two million-plus sq ft of cultivation in the ‘bread basket’ of cannabis, no company may offer investors a better combination of strategic market positioning and cheap valuation,” Mr. Cooper said.
The analyst is estimating Indus will generate full-year 2020 revenue and adjusted EBITDA of $44.7 million and negative $6.3 million, respectively, as well as revenue of $76.7 million along with $21.0 million in EBITDA for 2021.
We expect the consolidation in the cannabis sector to continue and Indus Holdings is positioning itself as an attractive takeover candidate, so long as the Company is able to execute on its cultivation expansion plans.
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