Significant synergies are expected with HIKU///MD merger Significant synergies are expected with the merger of Hiku Brands Company Ltd. (CSE:HIKU) and WeedMD Inc. (TSXV:WMD)
Engaging Retail
Hiku Brands has retail stores across Canada. Currently, Hiku operates seven brand stores and cannabis retail location (through government run dispensaries), located in Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island, and plans to expand to 10 by the end of 2018. In addition to brand stores, up to 20-30 dispensing stores are expected to open this year in British Columbia, Alberta, Saskatchewan, Manitoba and Newfoundland. With EBITDA margin estimates of over 40%, Hiku Brands reports that retail locations are earning higher margins than traditional wholesale because of its vertically-integrated operations. Hiku Brands estimates the retail price to be $16.50 per gram and targets annual revenue between $2.5M and $5.0M. Supply partners include Aphria (TSX:APH) and Canna Farms, which ensure premium cannabis products are available at all retail stores.
Balance Sheet and Valuation
As of the last reported financial quarter (Q1 – March 31/2018), Hiku had cash of $5.8M and debt of $12.8M.
Hiku Brands is trading at $1.26, down 56% since February 1, underperforming its benchmarks, the HMMJ Index and Canopy Growth Corp. (TSX:WEED), which decreased 1.4% and increased 43.8%, respectively, over the same period.
With a market-cap of $177.5M, Hiku has an EV/EBITDA FY2019 of 9.3x, a discount relative to its peer median of 12.7x. The Company has an average target of $3.88 and is covered by 2 analysts.
WeedMD Inc. – $1.70
Balance Sheet
As of December 31, 2017, the Company had $24.7M in cash and $11.4M in debt.
Valuation
WeedMD is currently trading at $1.70, down 30.6% YTD. WMD has significantly underperformed its benchmark, the HMMJ Index, which was down 4.9% over the same period. To a certain extent, the Company’s stock price followed a similar trend as the whole cannabis market, slumping from a peak of $3.06 in January to a bottom of $1.24, recovering to the current level. With a market-cap of $191.0M, WeedMD has an EV/EBITDA FY2019 of 6.9x, a discount relative to a peer median of 12.7x. The Company has two analysts covering the stock with a current target of $2.83, representing 100% in upside.