This cannabis stock is analyst's top pick among Canadian LP group, here's why

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Village Farms International, Inc. Tuesday that its consolidated sales increased 34% year-over-year to $70.2 million in the first quarter of fiscal 2022.

Canadian cannabis net sales increased 25% year-over-growth with a gross margin of 34% and adjusted EBITDA of $2.1 million. U.S. cannabis net sales were $7 million, with a gross margin of 67% and adjusted EBITDA of $0.6 million. (Benzinga)

The quarterly results demonstrate the "strength and earnings power of both our Canadian and U.S. Cannabis businesses," said Michael DeGiglio, the company's CEO.

"We expect continued momentum throughout 2022 and beyond as each of our cannabis businesses continues to launch innovative new products that address evolving consumer demand."

The Analyst

Cantor Fitzgerald's analyst Pablo Zuanic maintained an Overweight rating on the company's stock, lowering his price target to $7.3 to $9.3, due to sectoral derating and reduced estimates.

The Thesis

The analyst said that timing issues with Canadian cannabis shipments during the quarter and supply glut are to blame for a "disappointing print."

However, Zuanic pointed out that underlying trends for the company's Pure Sunfarms unit are solid. He also expects that sell-in trends will go back to normal in the subsequent quarter and second half of fiscal 2022.

"In the months ahead, we believe top-line growth will be further boosted by the launch of two new brands (one below the Pure Sunfarm flagship), a licensing agreement with Cookies, and the start of exports," the analyst said.

The company's Pure Sunfarms division launched 29 new SKUs across four product categories during the first quarter and remained the top-selling brand of dried flower products in key markets of Ontario, Alberta and British Columbia. 

It also¬†received¬†EU GMP certification from Bezirksregierung D√ľsseldorf recently, for its 1.1 million square foot Delta 3 cannabis production facility¬†in Delta, British Columbia. EU GMP certification permits Pure Sunfarms to export EU GMP-certified medical cannabis to importers and distributors in international markets that require EU GMP certification.

In March, Pure Sunfarms and its partner NOYA Cannabis jointly launched Berner's Cookies concentrates in Canada.

"In our view, the company's strategy in the context of several other Canadian LPs, is sustainable, given its lower cost structure and B/S strength," Zuanic said.

"Conservatively valuing the non-cannabis parts, we estimate the THC cannabis piece (a top 5 player) is valued at a compelling 0.3x sales."


by Jelena Martinovic

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