Decibel Cannabis Company Inc V.DB.WT.A

$0.54/Share DB.V Target

[GreenHanz]

Decibel is currently trading in the $55M - $60 M market cap range on the TSX V.  In a little over two months the stock price has gone from $0.06/share -> $0.17/share. In my view, at these prices the company is still extremely undervalued. My current price target on DB.V @ $0.54/share or approx. $186 M market cap.

Business Model & Assets
Decibel consists of a full vertical of assets:

1. 2 Cultivation Facilities (Thunderchild & Creston)
   1. Prior Capacity 1800 KG/annum (Creston)
   2. New Capacity 2021 of 9,100 KG/annum (TC + Creston)
   3. Future Phases (7500 Kg/annum TC + 1800 KG/annum Creston)
2. 1 Extraction Facility (Calgary)
   1. 15,000 Sq Ft of extraction & packaging
   2. 45,000 of expansion room
3. 6 Retail Locations
   1. 3 Saskatchewan
   2. 3 Alberta
4. 3 Brands
   1. Qwest & Qwest Reserve – Hang Dried, Hand Trimmed, Craft Cannabis. One of the most recognized and highest quality products in the space.
   2. Blendcraft– Indica, Sativa and Hybrid Blends
   3. General Admission – Strain specific/Great Value
5. Product Mix
   1. A focus on premium flower & cannabis 2.0 products (concentrates & vapes)
   2. Extensive rare genetics library that allows for choice in cultivar offerings and creates an inherent competitive advantage

 Events

1. Q3 Release -> $8.1 M in Revenue; CFFO of (-$0.7 M)
2. Debt restructuring ($30M Debt Refinancing – Dec 30, 20) 

• Favorable interest rate savings, simplified and improved covenants, and improved liquidity)

3. Thunderchild Asset Licensing (Jan 29, 21)

• Increased production capacity from 1800kg/annum to 9100kg/annum for 2021.

4. 2020 Q4 Earnings Release -> (Early March) 
5. 2021 Q1 Earnings Release -> (April/May)
6. 2021 Q2 Earnings Release -> (August/Sept)

Projection Scenario
Based on the Q3 Financials, DB achieves ~35% gross profit on revenue, so we’ll use this to base our forward projection. Overhead is running around $12 M/year in 2020; we’ll scale this to a $15M assumption for 2021.

• Revenue in Q3 = $8.1M (Actual)
• Revenue in Q4 = $10M (Estimate)
• Revenue in Q1 (21) = $15 M (Estimate Assumption)
  • New provinces, new production, and an increase in growth in provinces such as Ontario (200 stores moving to 1200 stores over 2021)
• Revenue in Q2 (21) = $25 M (Estimate Assumption)
  • First production from Thunderchild production coming online
• Revenue in Q3 (21) = $40 M (Estimate Assumption)
  • 4x production increase from Q4 estimate 2020 and TC reaching efficiencies
• Revenue in Q4 (21) = $40 M (Estimate Assumption)

 
Estimate 2021 Revenue = $120 M
Estimated 2021 Gross Profit (35%) = $42 M

Estimate 2021 EBITDA ($15M Overhead) = $27 M

8 x Multiple = $216 M EV
Long T Debt = ~$30 M

Market Cap = $186 M or $0.54/share

• This market cap projection does not include any phase 2 expansion assumptions or increase in retail locations

[khyber2]

Hi, Green Hans, I'm with you, spoke to the co. not too long ago.They have a lot of irons in the fire, all of them quite exciting. Am holding my 100k shares for at least .80 , And probably will not have to wait too long. GLT The khyber

[GreenHanz]

Agreed, the road to those levels is not far out. You don't have to look far to find comps with similar balance sheets and similar cashflow positions that are trading @ 3x-4x higher market caps. I also think theirs a competitive advantage in the brand and quality of DB products, which will really prove valuable moving forward.

[paulmorel]

good post, it's amazing to me that everyone in Canada is buying the big LP's that aren't going to make $ for years and ignoring the retail stocks that will be making $ long before the LP's not to mention the price of these stocks are in the toilet dispite the huge run up lately. When FOMO kicks in they will be going 10x todays levels, this is a buy and hold for me along with choom,

[GreenHanz]

Agreed Paul. Some of these large LP's have market caps 3x the entire target market size of Canadian Cannabis. They must have very aggressive US expansion plans built into those valuations. Hopefully sets up a nice acquisition environment for the undervalued players. I like your retail picks. High Tide will be a fun one to watch, nice to see them dipping into US expansion with their recent

[paulmorel]

Hey Green Hanz, if your not already in High tide, still time, way undervalued still at these prices and great cataclysts to come Q4 march, Q1 april, nasdaq listing, 12 new stores set to open in Ontario and 12 more in progress, and all that is needed is for Snoop to tweet something about their partnership and this will skyrocket. Decibel is also doing great, one of the best selling brands in