PharmaCan Capital (CVE:MJN) offers investors a unique value proposition in the public medical marijuana universe, according to analysts at Dundee Capital Markets, who initiated coverage of the company with a "buy" rating and 90 cent target price.
The unique aspect lies in the fact that the company offers exposure to several private medical marijuana companies, including five licensed producers, all within one holding business.
"That means straightforward diversification in a space crowded with options. Management has a proven history of successful deal making, having already realized up to 500% on certain investments (Peace Naturals)," wrote analyst Aaron Salz in a note released to clients on March 12.
"Trading at a material discount to NAV [net asset value], PharmaCan is a bargain purchase for investors looking to gain exposure to this nascent industry poised for 37% CAGR over the next decade, by our estimates."
Salz highlighted three main assets, including In The Zone, in which PharmaCan holds a 100 percent interest. Soon to the flagship asset, ITZ is a licensed producer in Okanagan Valley in British Columbia, and one of the original 13 licenses handed out by Health Canada. Acquired last November, the asset requires "stablization and perhaps $0.6 million investment" before Health Canada can be called in for final approvals, said Dundee.
The existing 2,000 square feet is licensed for 150 kg per year, but has expansion potential, being zoned for up to 200,000 square feet of covered grow.
The Peace Naturals Project, meanwhile, was PharmaCan's first investment in March 2013, well ahead of its eventual licensing in October 2013. Current facilities of 12,000 square feet are located in Simcoe County, Ontario. Peace has 95 acres of land, with a 40,000 square foot expansion already completed, zoned and pending Health Canada inspection, noted Salz.
The broker also took note of Whistle Medical Marijuana Company, in which PharmaCan holds a 21.4 percent interest. The licensed producer is based in Whistler, BC, and has facilities of 10,000 square feet, with a licensed capacity of 200 kg.
"This is one of the few truly organic buds, premium priced, and well-liked by the patient community. This is a brand we see with high international expansion potential," wrote Salz.
Aside from its investments, PharmaCan was also praised for its straightforward and defensive deal structure, protecting itself by taking 20 to 30 percent stakes with board representation.
Other notables included management expertise, with management following an eight-step due diligence process for potential investments, Dundee said.
Looking ahead, Salz said catalysts for the stock this year include a turnaround and new build at ITZ, Peace's new 40,000 square foot facility to be operational and licensed, and the potential for ABcann and Hydropothecary to become licensed producers.
Shares are trading at 58 Canadian cents on Thursday, up some 7.4 percent.