Equity Research Healthcare – Cannabis
Patrick Smith | Analyst | Ubika Research Patrick@UbikaResearch.com | (647) 444-5506
Christopher, Bednarz MBA | Associate | Chris.B@UbikaResearch.com | (416) 558-5548
JAMAICA UPDATE
Commercial status reached at Global Canna. On April 4, 2019,LGC announced that Global Canna Labs (30% interest and a 5% royalty) has sold 46.5 kg of medical cannabis to licensed local dispensaries to-date. In late-March, Global Canna Labs received formal approvals from the Jamaican Cannabis Licensing Agency to allow the sale of medical cannabis to dispensaries. We note that while 46.5 kg may seem small (~US$128,000 in wholesale value based on our estimates), we believe Global Canna is one of the most developed legal medical cannabis companies in Jamaica. For reference, Global Canna Labs has a Tier-3 licence for the cultivation and production over 5 acres.
LGC CAPITAL LTD. TSXV:LG
(Currency is CAD$ & estimates are attributable, unless noted otherwise)Last Price $0.125
Target Price$0.20
Potential Return63%
Net Asset Value Per Share $0.23
52 Week Low / High$0.08 / $0.25
Average Daily Volume (30-Day)580K
| CAPITALIZATION | Basic | Diluted |
|---|---|---|
| Shares Outstanding (M) | 416.2 | 610 |
| Market Capitalization ($M) | $52.0 | |
| Enterprise Value ($M) | $51.4 | |
| Cash Balance ($M) | $2.9 | |
| Total Debt ($M) | $2.3 |
| LGC CAPITAL OPERATIONS | 2019E | 2020E | 2021E |
|---|---|---|---|
| Flower Produced (kg) - 100% | 7,300 | 23,600 | 39,500 |
| Revenue ($M) | $12.7 | $35.8 | $61.7 |
| Cash Costs ($ per gram) | $1.03 | $1.08 | $1.02 |
| AICC ($ per gram) | $2.13 | $2.19 | $1.61 |
| EBITDA ($M) | -$0.8 | $9.9 | $27.3 |
| FCF ($M) | -$12.8 | -$12.9 | $3.2 |
| Total CAPEX ($M) | $8.9 | $19.0 | $14.6 |
| CFPS | $0.00 | $0.01 | $0.03 |
| Cash At Year End ($M) | $1.9 | $1.8 | $1.9 |
| Debt At Year End ($M) | $2.5 | $6.0 | $6.0 |
| Relative Valuation | P/NAV | EV/EBITDA | |
|---|---|---|---|
| 2019E | 2020E | ||
| LGC Capital Ltd | 0.5x | nm | 4.6x |
| Cannabis Holdings Companies | n/a | 18.3x | 7.9x |
| Gold and Oil Royalty Companies | 1.4x | 10.7x | 9.1x |
| MAJOR SHAREHOLDERS |
|---|
| Management & Insiders (21.3%) | DISCLOSURE CODE: |
| Disclosure: None (See back page for further details) |
Global Canna is planning to operate two dispensaries and one processing facility. Becoming vertically integrated in Jamaica with dispensaries and a processing facility would be significant catalyst. Particularly, we believe the ability to process medical quality crude oilwith low-cost biomass is the most important driver moving forward.
The majority of Global Canna’s 270,000 sq ft Monte- go Bay site is now planted. The Company expects to per- form two sectional harvests/month. The first bi-monthly harvest is anticipated on April 10. We have adjusted our cultivation and cost estimates to take a more conservative approach for this year, given the large scope of the project and local regulatory demand. As such, we now are modelling 3,600 kg (was 7,000 kg) in F2019E (ending Sept. 30,2019). However, this adjustment was more than offset by an higher than expected price/kilo, which we have also adjusted to $3,700/kg(was $2,600/kg).
Figure 1: Outdoor Growing
ATTRIBUTABLE REVENUE & EBITDA FORECAST
Valuation
- Trades at a discount to peers. We have adjusted our estimates and our NAVPS has increased to $0.23 (was $0.21), although our BUY rating and target of $0.20 remains the same. LGC currently trades at 5.2x our F2020E EBITDA estimates of $9.9M, a discount to cannabis holdings companies and gold and oil royalty companies, which trade at an average of 7.9x and 9.1x, respectively. We believe this gap should close as LGC begins to make material cash flow.
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