Hiku Brands Company Ltd. DJACF

Globe and Mail - DOJA target price $2 with buy rating

[GoodGreenDay]

DAVID LEEDER

PUBLISHED DECEMBER 4, 2017 UPDATED 1 MINUTE AGO

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Mackie Research Capital analyst Greg McLeish initiated coverage of Doja Cannabis Company Ltd. (DOJA-CN) with a "speculative buy" rating.

"DOJA's strategy is to become a supplier of high-quality dried marijuana and cannabis oils for discerning medical and recreational consumers," he said. "Management believes that its growing facility is ideally suited for this purpose and is currently cultivating marijuana strains it feels will be appealing to its customers. High-quality buds can command a price premium of approximately 150 per cent ($15.00 per gram versus $6.00/g) and this is the market the company is looking to target."

Currently the lone analyst covering the stock, according to Bloomberg, Mr. McLeish set a price target of $2 for Doja shares. 

"Canada is developing a world class cannabis industry and companies operating in the sector are just in the early stages of growth," said Mr. McLeish. "As a result, historical trading patterns are not a good proxy for establishing appropriate valuation multiples. In determining our valuation multiples, we focused on Health Canada licensed producers that will operate in both the medical and recreational marijuana markets. These companies have been trading between 10– 15-times forward 2020 EV/EBITDA estimates. Industry dynamics are very compelling and, once these companies achieve economies of scale and improve operational efficiencies, they should be able to generate EBITDA margins in excess of 30 per cent. Additionally, Constellation Brands (STZ-N) recently made a $245-million investment (9.9 per cent) in Canopy Growth (WEED-T) and we believe that this could be the beginning of an investment trend whereby other multinational players (alcohol, tobacco and pharma) will look to position themselves in the Canadian cannabis space.

"We forecast that the majority of companies operating in the cannabis sector will not experience material revenue or earnings growth until at least 2019 or 2020. As a result, we value companies based on our financial projections through 2020. However, investing in the cannabis sector is not for the faint of heart since companies operating in the sector will most likely experience both regulatory and operational challenges. Given the speculative nature of this investment, we have applied an 11 times EV/EBITDA multiple and a discount rate of 30 per cent to account for these risks."

[dela90]

Great to see DOJA get its first analyst. Looking forward to $2