Growing sales of medicinal cannabis, which is critical to Khiron’s long-term growth, says ATB Capital

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“We are reducing our sales estimates due to the devaluation of the local currency and the impact of COVID-19 on CPG sales. However, we’ve increased our gross margin estimates to account for soaring medical cannabis sales. Our price target remains unchanged as lower sales estimates are offset by higher margin estimates, ”said David M. Kideckel, PhD Analyst, Managing Director at ATB Capital.

“Maintain speculative buying with an unchanged target price of USD 1.00: Our target price is based on our DCF forecast through 2030e, with a discount rate of 17% and a growth rate of 3%, both unchanged. The final value is 39% of our fair value estimate. Our rating reflects the regulatory uncertainty for cannabis use in LATAM. “

The US-listed shares of Khiron Life Sciences are up over 24% so far this year.

ATB Capital performed a scenario analysis and provided revenue estimates for the end of 2021 of $ 11.8 million in the bear scenario, $ 15.2 million in the base scenario and $ 28.2 million in the bull scenario.

Bear fall: We anticipate lower sales in 2021e due to the impact of the COVID-19 pandemic on sales of medical cannabis and healthcare services from Khiron.

Baseline: We expect sales to increase in 2021e as Khiron increases sales of medical cannabis products in Colombia with moderate effects from COVID-19. We anticipate that from H2 / 21e onwards, Khiron will begin generating significant sales of medical cannabis in international markets (e.g. UK, Peru, Brazil). We also anticipate that Khiron’s CPG segment revenue can resume once COVID-19 wears off in 2022e.

Fall Bull: We anticipate that COVID-19 will not have a material impact on Khiron’s sales and that the company will be able to rapidly increase sales of medical cannabis in Colombia, export it to European markets and expand its clinical model LATAM to expand.

Cannabis is an emerging industry and is subject to regulatory headwinds. Although the industry is still emerging, legal cannabis has gone through several iterations. The business started as a flower-based market targeting the needs of stoners and then evolved into a more retail-oriented market experimenting with multiple edibles, beverages, and concentrates.

More recently, the cannabis industry has expanded its reach further to appeal to a broad base of the audience whose main goal is not to get intoxicated but to be cured of some form of the disease.

While more than half of the population is in favor of new legalization, so far only a few states have legalized recreational cannabis and the product remains illegal at the federal level. There is still a lot of work and change to be made for this industry to reach its full potential.