SHWZ - Schwazze (SHWZ) - Post Management Call Commentary and Updated Models

Call w/Management. We remain enthusiastic about Schwazze following our conversation with CEO Justin Dye and CFO Nancy Huber. Management continues to increase market share, the implementation of the operating playbook is resulting in better than overall market performance, and there remains a defined pathway to get Schwazze to the $500 million revenue level.MCG Acquisition. The Company is acquiring MCG, LLC for $29 million. Also known as Emerald Fields, MCG operates two dispensaries, one in Denver and one just outside of Colorado Springs, a market in which adult use dispensaries have yet to be approved. The Manitou Springs locations is reportedly one of the highest grossing locations in Colorado. Further Growth. We continue to expect Schwazze to target additional M&A in the Colorado market. The cycling of the COVID ramp combined with increased competition in the market as additional MSOs enter the state could provide the impetus for independents to cash in their chips. We believe local-based Schwazze will be well positioned to capture additional acquisitions.Updated Projections. We updated our models to reflect third quarter performance and management's guidance on current operating conditions. While we left our fourth quarter revenue estimate unchanged at $32.6 million, we trimmed our EPS to $0.02 from $0.05 reflecting modestly lower margins but, more significantly, a higher tax rate. For the full year, we are at revenue of $114.6 million, adjusted EBITDA of $34 million, and EPS of $0.07.Maintaining Outperform. We are maintaining our Outperform rating and $4.00 twelve month price target. At our price target, SHWZ shares would trade at 4x projected 2021 revenue and 12.7x projected 2021 EBITDA on a fully diluted basis. We believe the recent proposed acquisition of Gage Growth by TerrAscend provides support to our price target. Read More >>