CBWTF - Auxly Cannabis cut to neutral at Cantor citing lower estimates and multiple

Cantor Fitzgerald downgraded Canadian Licensed Producer Auxly Cannabis ( OTCQX:CBWTF ) to Neutral from Overweight on Monday, citing reduced sales estimates and a lower valuation multiple.

“The heavy debt load and likely equity holder further dilution, combined with worsening scanner trends prompt us to downgrade our rating to Neutral,” the analyst Pablo Zuanic wrote.

Noting that Auxly ( OTCQX:CBWTF ) market share in vape and flower segments is declining further, Zuanic points out that the company’s vape segment, which makes up over 40% of the topline, witnessed its share dropped to 19% in 2Q 2022 from ~20% in 1Q 2022.

“All this is in the context of the company lowering prices, which does not bode well for profitability,” the analyst added.

While Auxly ( OTCQX:CBWTF ) could be a compelling opportunity, the convertible notes held by Imperial Brands ( OTCQX:IMBBY ) ( OTCQX:IMBBF ) could give pause to potential acquirers, Zuanic added.

The Aug 2023 price target cut to C$0.08 from C$0.20 is based on 12-month forward sales on a 2.5x multiple and forward enterprise value, which, according to the analyst, is more appropriate for Auxly ( OTCQX:CBWTF ) than a spot EV given the company’s negative projected FCF.

Auxly ( OTCQX:CBWTF ) has improved its liquidity in recent weeks. In July, the company disclosed $6M proceeds received from the sale of an indoor cultivation facility located in Kentville, Nova Scotia.

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