Canaccord Genuity is keeping its price target for TILT Holdings Inc. (SVVTF) at C$7 following the company's close of its acquisition of Pennsylvania's Standard Farms. Tilt paid $40 million for Standard, which consisted of $12 million in cash and 11.09 million in shares.
"With the close of Standard Farms, TILT continues to execute on its multi-state strategy, bringing wholesale cultivation and processing online in PA," said Analyst Bobby Burleson. "In 2019, we expect significant capacity expansion for the operation, as existing canopy nearly doubles to 34,000 sq. feet, followed by a transition to full vertical integration with the roll out of retail sales by 2020."
Burleson is sticking with the price target, even though the stock was lately trading at C$3.05 and hasn't been above C$4 for the past year. Burleson said, "While we adjust the TILT share count higher by two million shares, our price target remains C$7 and we reiterate it's a speculative buy."
Tilt just completed two other acquisitions -- for a vape hardware company called Jupiter and a distribution company called Blackbird. TILT Holdings was also added to the United States Marijuana Index in January, which is owned and Managed by MJIC.
Standard Farms is a wholesale and processing operation in the state of Pennsylvania with 18,000 square feet of growing space and the ability to expand that to 34,000 square feet. It has a leading share in the market and its products are available to buy in 95% of the state's dispensaries.
Pennsylvania just launched its medical marijuana program, and leading politicians have already started to discuss full legalization. Burleson said, "We view PA as an attractive market, given the state's large population and initial strong patient adoption for the medical program. We are forecasting the PA medical market to nearly triple from an estimated $125 million last year to approximately $350 million by 2022."
Just last week, Pennsylvania Agriculture Secretary Russell Redding announced that the state would reopen the application process for obtaining licenses to grow commercial hemp. Only Pennsylvania and Kentucky have submitted plans to the Department of Agriculture to allow for full production of industrial hemp.
After the 2014 Farm Bill was passed that allowed for limited hemp cultivation, Pennsylvania passed its own legislation -- the 2016 Hemp Research Act. Farmers with a permit could grow up to five acres of hemp, but then that was increased to 100 acres. The Commonwealth has issued a total of 84 permits for the 2019 season, however, that could go higher as applicants who had previously been denied can now reapply for a permit.
Overall, the state reported taking in approximately $11 million through December 31, 2018 for the total program. This was slightly below the expected $12 million, however the program didn't begin until February. Pennsylvania could potentially earn $581 million in annual revenue if the state legalized adult use cannabis, according to a report released by Auditor General Eugene DePasquale.
The report went on to suggest that the total market size for the state could be $1.6 billion. The report noted, "The $1.66 billion estimate includes only the total direct sales of marijuana. It excludes the economic activity generated by jobs and businesses created to support the retail marijuana industry in Pennsylvania. It also does not account for the decreased criminal justice system costs as a result of eliminating arrests and incarcerations for possession of marijuana."
Currently it is a somewhat level playing field for Pennsylvania dispensaries. Each license was limited to three dispensaries, although according to Cannabiz Media, a company that tracks licenses, Green Thumb Industries Inc. (GTBIF) acquired another company's license location and is up to five. Other active license holders include Columbia Care, Cresco Labs Inc. (CRLBF) , Grassroots Cannabis and Holistic Pharma. Grass Roots' dispensaries are named Herbology and that company is up to four locations due to an acquisition. There are 144 pending licenses and an additional 56 applications.