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small-cap

Should You Exit From This US-Listed Cannabis Products Manufacturer – CCHWF

Mar 22, 2022 | Team Kalkine
Should You Exit From This US-Listed Cannabis Products Manufacturer – CCHWF

Columbia Care Inc.

Columbia Care Inc. (OTC: CCHWF) is one of the oldest manufacturers and providers of cannabis goods and services in the United States, with licenses in 18 states and the European Union (EU). CCHWF has 131 facilities, including 99 dispensaries and 32 cultivation and manufacturing facilities and those in the works. It was one of the first multi-state medical cannabis providers in the United States.

Why should Investors make an Exit?

  • Bottomline Stress: In preliminary results, the company reported a significant increase in net losses to USD 146.85 million in FY21 (ended December 31, 2021) from USD 119.65 million in FY20.
  • Long Cash Conversion Days: The company's cash conversion days were 248.1 days at the end of September 30, 2021, compared to the industry median of 132.3 days, showing that it takes a long time to convert its inventory to cash.
  • Leveraged Balance Sheet: As of September 30, 2021, the company's debt/equity ratio was 0.60x, compared to the industry median of 0.33x. Furthermore, its long-term debt-to-total-capital ratio was 37.1%, compared to 21.1% for the industry during the same period. As a result, the company's exposure to balance-sheet risk has increased.
  • Regulatory Risk: The legality of the cannabis industry determines the success of CCHWF's business strategy. The cannabis industry's political climate is tumultuous, and the regulatory framework is continuously altering. As a result, the company's business might be badly harmed in the long run if the federal government decides to enforce federal cannabis laws in states where the sale and use of cannabis are currently legal or if existing applicable state laws are repealed or limited.

Valuation Methodology: Price/Sales Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

CCHWF's stock price has fallen 54.42% in the past twelve months and is leaning towards the lower band of the 52-week range of USD 2.44 to USD 6.95. We have valued the stock using the Price/Sales-based relative valuation method and arrived at a target price of USD 2.69.

Considering the company's bottom line pressure, long cash cycle, leveraged balance sheet, current valuation, and associated risks, we recommend a "Sell" rating on the stock at the current price of USD 3.15, as of March 21, 2022, at 9:30 AM ET.

 Technical Price Chart (as of March 21, 2022, at 09:30 AM ET). Source: REFINITIV, Analysis by Kalkine Group

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.