Slang Worldwide Inc C.SLNG

New CG USA price target $3.75 report

[JBong55]

 

 

 

 

SLANG Worldwide

Cannabis | Initiation of Coverage  

Multi-country consumer brands platform

 

 

SLNG-CSE | Price C$2.46 | Market Cap  C$886M

SPECULATIVE BUY

PRICE TARGET C$3.75

 

 

We are initiating coverage of SLANG Worldwide with a SPECULATIVE BUY rating and a C$3.75 price target. We believe the company is well positioned to capitalize on strong growth in legal cannabis markets in the US, Canada, and internationally. With a portfolio of successful brands in key growth categories including vape and edibles, a substantial multi-state US footprint, a capex-light pathway to further expansion, and an experienced management team, SLANG is poised for meaningful revenue and EBITDA growth. Valuation is at a 14% discount to US peer average multiples on 2020E EV/EBITDA, while recent acquisitions targeting branded products and wholesale distribution in the US have been at a 2x premium to where the company currently trades on 2020E EV/sales.

Leading products across several categories: SLANG has one of the broadest portfolios of cannabis consumer-branded products in the industry and continues to expand its offering. The company’s more than 100 SKUs include multiple brands that occupy top positions in their respective categories. We estimate overall market growth for vape and edibles, SLANG’s principle product categories, will outpace the broader market in the US as consumption patterns continue to shift away from flower.

Healthy multi-state penetration: SLANG’s products are currently available in 11 US states, including CA, CO, MA, MI, and NV. Internationally, SLANG should launch in Canada and Jamaica this year, and we expect additional US expansion in the near term. In aggregate, we estimate a retail TAM for SLANG’s current US markets at $11.8B by 2020, growing at a CAGR of 21% from 2018 levels. Including expansion markets in the US and internationally, we see an overall 2020 retail TAM of more than $18B.

Partnership approach to expansion: SLANG employs an asset-light model, providing partners with branding, production IP and packaging in exchange for manufacturing, shipping and logistics. SLANG collects revenues through licensing fees as well as the sale of hardware and packaging materials, and benefits from lower capex and shortened production lead times when entering new markets, as the company maintains no production or retail assets. Partners include Agripharm, Canopy Growth, Green House Seed Co., Trulieve and Greenlane.

Consolidation highlights attractiveness of branded products: Recent acquisitions of portfolios of branded products have been at meaningful premiums to SLANG’s valuation. The deals are raising awareness of the value of brands and wholesale distribution, even for MSOs with their own brands and substantial footprints.

Management is experienced and well-connected: We note that senior management is made up of industry veterans who have previously founded and sold cannabis businesses, including Mettrum Health (sold to Canopy for C$430M in 2017). Insiders currently own 31% of outstanding shares. We note Canopy has warrants to acquire a 14% stake in the company.

Valuation offers upside potential: Our C$3.75 price target is based on SOTP, DCF and peer group analysis; it represents an EV/EBITDA multiple of 12.7x our 2020 estimate and an EV/sales multiple of 2.9x.

 

 

Bobby Burleson | Analyst |  Canaccord Genuity LLC (US) |  [e-mail] |  415.229.7163

Jonathan DeCourcey | Associate |  Canaccord Genuity LLC (US) |  [e-mail] |  617.371.3884

 

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SLANG Worldwide

Cannabis | Initiation of Coverage  

Multi-country consumer brands platform

 

 

SLNG-CSE | Price C$2.46 | Market Cap  C$886M

SPECULATIVE BUY

PRICE TARGET C$3.75

 

 

We are initiating coverage of SLANG Worldwide with a SPECULATIVE BUY rating and a C$3.75 price target. We believe the company is well positioned to capitalize on strong growth in legal cannabis markets in the US, Canada, and internationally. With a portfolio of successful brands in key growth categories including vape and edibles, a substantial multi-state US footprint, a capex-light pathway to further expansion, and an experienced management team, SLANG is poised for meaningful revenue and EBITDA growth. Valuation is at a 14% discount to US peer average multiples on 2020E EV/EBITDA, while recent acquisitions targeting branded products and wholesale distribution in the US have been at a 2x premium to where the company currently trades on 2020E EV/sales.

Leading products across several categories: SLANG has one of the broadest portfolios of cannabis consumer-branded products in the industry and continues to expand its offering. The company’s more than 100 SKUs include multiple brands that occupy top positions in their respective categories. We estimate overall market growth for vape and edibles, SLANG’s principle product categories, will outpace the broader market in the US as consumption patterns continue to shift away from flower.

Healthy multi-state penetration: SLANG’s products are currently available in 11 US states, including CA, CO, MA, MI, and NV. Internationally, SLANG should launch in Canada and Jamaica this year, and we expect additional US expansion in the near term. In aggregate, we estimate a retail TAM for SLANG’s current US markets at $11.8B by 2020, growing at a CAGR of 21% from 2018 levels. Including expansion markets in the US and internationally, we see an overall 2020 retail TAM of more than $18B.

Partnership approach to expansion: SLANG employs an asset-light model, providing partners with branding, production IP and packaging in exchange for manufacturing, shipping and logistics. SLANG collects revenues through licensing fees as well as the sale of hardware and packaging materials, and benefits from lower capex and shortened production lead times when entering new markets, as the company maintains no production or retail assets. Partners include Agripharm, Canopy Growth, Green House Seed Co., Trulieve and Greenlane.

Consolidation highlights attractiveness of branded products: Recent acquisitions of portfolios of branded products have been at meaningful premiums to SLANG’s valuation. The deals are raising awareness of the value of brands and wholesale distribution, even for MSOs with their own brands and substantial footprints.

Management is experienced and well-connected: We note that senior management is made up of industry veterans who have previously founded and sold cannabis businesses, including Mettrum Health (sold to Canopy for C$430M in 2017). Insiders currently own 31% of outstanding shares. We note Canopy has warrants to acquire a 14% stake in the company.

Valuation offers upside potential: Our C$3.75 price target is based on SOTP, DCF and peer group analysis; it represents an EV/EBITDA multiple of 12.7x our 2020 estimate and an EV/sales multiple of 2.9x.

 

 

Bobby Burleson | Analyst |  Canaccord Genuity LLC (US) | 

Jonathan DeCourcey | Associate |  Canaccord Genuity LLC (US) |