Positive outlook continues for The Supreme Cannabis Company as BOA Merrill Lynch initiates coverage with ‘Buy’ rating
Bank of America Merill Lynch initiated coverage on a select group of cannabis stocks this week, proof positive that the industry has found itself on solid footing as it begins to break down barriers with the traditional investor class.
Along with previously reported notes on HEXO Corp. (HEXO), Aurora Cannabis (ACB), and Canopy Growth Corporation (CGC), analyst Christopher Carey sent investors an extremely positive note on The Supreme Cannabis Company (TSX:FIRE), initiating coverage with a ‘Buy’ rating and CA$2.50 ($1.87) price objective.
Supreme, of course, is a well-known cannabis company focused on the recreational market. As previously reported by PotNetwork News, the company has two critical assets that give it leg-up among its peers — a 440,000-square-foot production facility in Kincardine, Ontario and the award-winning 7ACRES brand.
According to Carey’s note, although Supreme sells 80 percent of its product to peers in the Canadian market, it sells in bulk for nearly the same prices that others are selling at retail. At CA$6,000-7,000 per KG ($4488.60 - $5236.70), Carey asserts the company has a “much more efficient (higher margin) delivery format.”
Furthermore, Carey sees high-margin wholesale prices sustaining themselves for the next couple of years, giving Supreme ample time to transition products to retail, if necessary.
Along with the company’s wholesale plan, Carey also had high-praise for Supreme’s premium retail strategy as well, which covers the other 20 percent of company sales. Its higher-priced offerings have seen a positive reaction in the market, helping them to lay out a roadmap for a broader retail strategy in the future.
“We view Supreme as an underappreciated small cap, with potential to become a more meaningful participant in the Canadian cannabis landscape given premium positioning,” wrote Carey in his investment rationale.
The positives pile-on for Supreme
In February The Supreme Cannabis Company reported their financial results for Q2 of fiscal year 2019, and as previously reported by PotNetwork News the results were impressive. According to PotNetwork News reporter James Waggoner, the numbers stack up well compared to the larger Licensed Producers in Canada.
“Revenues increased 359 percent to CA$7.72 million ($5.79 million) and 50 percent on a sequential basis,” Waggoner wrote about the company’s Q2 results earlier this year. “This is a good performance in light of Canadian legalization and compares favorably with results from Aurora and other larger players.”
More recently, the company announced that 7ACRES, which is a wholly-owned subsidiary, obtained approval from Health Canada approval for six additional flowering rooms, giving them a total of 60,000-square-feet of additional production in Kincardine.
In total, the facility now has 180,000-square-feet, raising 7ACRES' annual production capacity from approximately 17,500kg to 26,250kg.
Speaking directly with PotNetwork News, a source from The Supreme Cannabis Company said that 2019 was already looking to be a breakout year for the company.
“Since the beginning of 2019, our company has been able to execute on a number of significant milestones including up-listing to the Toronto Stock Exchange, doubling capacity at our 7ACRES facility and the upcoming launch our oil products line,” the source told PotNetwork News. “Consumer response to our premium offering has been very positive and we continue to target areas of the market where we can establish a proprietary advantage.”
As of this writing The Supreme Cannabis Company is trading at CA$1.95 ($1.46) on the TSX, which is the same price the stock closed at yesterday.