The Acreage Analyst
Pablo Zuanic maintained a Neutral rating on Acreage Holdings and raised the price target from $2.30 to $2.90.
The Acreage Thesis
Acreage achieved 15% sequential sales growth in the March quarter, with master service agreement units generating 20% revenue growth and the company’s gross margins expanding by four percentage points, all of which are “good metrics,” Zuanic said in a Friday note. (See his track record here.)
Although Acreage’s performance in the second quarter will be impacted by COVID-19-related closures of some of its facilities and dispensaries, the cannabis company seemed confident of reaching positive EBITDA for the year, the analyst said.
Referring to the risk of insolvency, Zuanic said the company exited March with $40 million in cash; is making efforts to resize the business; and should be able to raise about $80 million from an equity offering, which has already been agreed upon as part of the revised terms of its contingent deal with Canopy Growth (NYSE:CGC).
Given these factors, “we now take a 50% discount (to the Canopy Growth contingent deal offer price) to value Acreage vs. 60% before,” the analyst said.
ACRGF Price Action
Shares of Acreage Holdings were down 9.03% at $2.62 at the time of publication Friday.