PI Financial Analysts: Red White & Bloom…

105 points

(Red White & Bloom Cultivation Facility in Illinois. Image via PI Financial.)

Independent investment dealer PI Financial recently initiated coverage on Red White & Bloom Brands Inc. (CSE: RWB, OTCQX: RWBYF, Forum). Here are why investors may be interested in what PI Financial had to say about RWB ….

The coverage begins:

Michigan Powerhouse: Red White & Bloom is the largest cannabis operator in the state of Michigan (pending approval of its PharmaCo acquisition), and its market lead has recently increased with the market leading vape pen manufacturer – Platinum Vape. Platinum Vape also has a large presence in California and Oklahoma and RWB also owns a large hemp operation in Illinois.

In early December 2020, RWB executed its phase one roll-out of an exclusive line of cannabis products to the Michigan market, with further shipments expected to commence in Q1 2021.

What led PI Financial to this decision?

  • Biggest Retail Footprint in Michigan – RWB has a pending acquisition of PharmaCo based in Michigan
  • High Times brand – RWB acquired the licensing rights for the High Times brand in Michigan, Massachusetts and Florida
  • World’s Largest Greenhouse Hemp Operation – RWB owns a 3.2 million square foot greenhouse in Illinois that is currently licensed to grow hemp
  • Platinum Vape is one of the most successful cannabis consumer products companies in Michigan

(Image via PI Financial.)

Having been fairly active since its RTO in April 2020, RWB’s efforts have not gone unnoticed by PI Financial, who focused on retail in Michigan, but also the value of the High Times acquisition. With this in mind, the firm is forecasting revenue of $40.3 million (USD) in fiscal year 2020, growing to $293.4 million (USD) in fiscal year 2021 and even further to 381.4 million (USD) in fiscal year 2022. From this revenue base, the report estimates EBITDA forecasts of $4.9 million, $70.0 million (USD) and $125.4 million (USD) for the same period. We will look even further into PI Financial’s financial estimates on RWB below.

Looking more closely at RWB’s hemp operations, PI Financial offered these observations:

“The business of growing hemp in a greenhouse has numerous advantages. The most obvious advantage is the fact that RWB can continuously grow year-round rather than a typical outdoor crop which is seasonal. A greenhouse can also yield more hemp per acre than an outdoor producer given the ability to tightly control growing variables. We estimate that one acre of greenhouse will yield the same amount of hemp flower as an outdoor producer can grow in 10-20 acres.”

With this in mind, PI Financial sees investment drivers coming from three states:

Massachusetts: Through a royalty agreement, a cannabis operator, has been pre-qualified for two dispensaries and a 100,000 square foot cultivation facility where RWB will receive a 15% royalty on net revenue from this operator.

California: Exposure through Platinum Vape, on the shelves of several hundred dispensaries in the state, led PI Financial to We estimate that revenue in California is currently at an annual run rate of around $28 million (USD).

Oklahoma: A medical-only state, OK has the highest percentage of its population in its medical program (7%) and PI Financial estimates that Platinum Vape could generate $6 million (USD) in sales in the next 12 months.

Compared to other Multi State Operators, RWB represents a small and deep strategy in PI Financial’s estimation – maintaining a dominant position in Michigan which is an attractive state for growth.

(Source: PI Financial, Michigan Regulatory Agency.)

Financials & Revenue:

PI Financial believes that trading multiples are likely to increase over the next 12 months as more capital flows into the US cannabis sector.

From the report: “Of the 10 stores that have opened, we estimate that 8 stores are averaging $6.5 million (USD) in sales per year while the two higher volume stores are averaging closer to $18.0 million (USD) per year.”

The 3.4 million square foot hemp greenhouse in Granville, IL, under an assumption of $5 million (USD) in sales in this fiscal year (essentially just two quarters) with fiscal year 2021 sales of just under $50 million (USD).

Platinum Vape was selling its products at a run rate of $70 million -$75 million (USD) per annum and PI Financial estimates that about 10% ($7 million) was sold through PharmaCo dispensaries, so the adjusted run-rate was $63-$68 million (USD). Even so, PI Financial believes that RWB should capture a better margin for the $7 million (USD) of Platinum Vape products sold in its stores.

Investment summary:

The PI Financial report offers plenty to digest for investors, but the key takeaway from its coverage of Red White & Bloom Brands Inc. is its BUY rating (Risk: Speculative), and a 12-month target of $2.50. This represents an EV / EBITDA of 10.8 based on our fiscal year 2021 estimates. Red White & Bloom Brands offers considerable upside potential in the eyes of the report’s author. To find out more about the Company, visit redwhitebloom.com.

FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.

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