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Haywood reiterates Buy rating and $3.50 price target on WeedMD following 'solid' 2Q financials

Haywood’s analysts said they believe WeedMD is "poised to enter 2020 with a sizeable inventory and product portfolio"

WeedMD facility
The analysts pointed out that WeedMD’s recent 2Q financial results beat expectations, leaving them positive on the company’s story

Haywood Capital Markets reiterated a Buy rating and $3.50 target price on WeedMD Inc (CVE:WMD) (OTCMKTS:WDDMF), adding it views the cannabis producer as “undervalued when compared to its peer group."

In a recent note to clients, Haywood analysts recommended buying shares at current prices, adding the firm reported "solid Q2/19 results with revenues well above expectations."

The analysts pointed out the recent results were better than forecasted, which demonstrated "management’s disciplined cost management as well as an improvement in gross margins."

READ: WeedMD shares rise after revenue soars in record second-quarter results

The analysts noted WeedMD saw an increase in cannabis sales, driven by wholesale revenue in 2Q.

They said: "The company sold 1,979 kg of dried cannabis equivalent in the quarter for a Q/Q increase of 150%." 

Additionally, the firm continues to build its inventory, noted analysts, boosting its inventory 43% in the quarter to C$12.5 million. This included around 2100 kgs of dried cannabis, valued at C$6.8 million, with an additional 398 kgs in progress, valued at C$1 million. 

"The company continues to build its extract inventory in preparation of Cannabis 2.0 being launched across Canada in December," noted analysts. 

Analysts also pointed out the firm is well-positioned in the market, with its expanding greenhouse in Strathroy, Ontario, supported by the firm's facility in Aylmer. The firm currently has 110,000 sq/ft of licensed greenhouse production, in addition to 26,000 sq/ft of indoor processing. 

"WeedMD is fully-funded for over 600,000 sq. ft. of indoor and greenhouse production as well as 27 acres of outdoor cultivation in 2019," noted Haywood analysts. 

Multiple distribution agreements

The firm has also been successful at securing multiple distribution channels, leading to agreements with six provinces in Canada, noted analysts, adding the WeedMD also secured an agreement with Canadian pharmacy behemoth Shoppers Drug Mart

They said: "In our view, this helps differentiate the company and gives confidence in the company’s ability to penetrate the marketplace."

Last, analysts highlighted WeedMD's unique cannabis genetics, which has allowed the firm to develop a range of product offerings, in addition to selling genetics to other Canadian licensed producers, "generating an additional revenue source but also developing good relationships within the sector."

The move could prove valuable through potential partnership opportunities, pointed out analysts, noting the firm has extraction capabilities as well as a partnership with Phivida Holdings Inc (CSE:VIDA) to develop cannabis-based beverages and Ignite International Brands Ltd (CSE:BILZ) through its subsidiary, CX Industries.

Bought deal offering

Also on Wednesday, broker Mackie Research Corporation reiterated its own Buy recommendation and maintained its price target of C$4. The firm called WeedMD’s future outdoor cultivation capacity a “game changer” for the company.

Mackie is acting as the lead underwriter on a C$10 million bought deal offering announced by WeedMD late Wednesday. Haywood is also participating in the offering.

WeedMD stock closed at C$1.56 Wednesday in Toronto.

--Updated with Mackie note and financing news--

Contact Katie Lewis at [email protected]

Quick facts: WeedMD Inc

Price: 0.78 CAD

TSX-V:WMD
Market: TSX-V
Market Cap: $145.44 m
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