SHWZ - Schwazze (SHWZ) - Price Target Supported by Recent Industry Acquisition
Gage Growth Acquisition. Last week TerrAscend Corp. (OTC:TRSSF) announced an agreement to acquire Gage Growth Corp. (OTC:GAEGF) for $545 million. Gage is a leading high-quality cannabis premium brand and operator in Michigan. Annualizing Gage Growth's 2Q21 revenue of $26.4 million results in an acquisition multiple of 5.2 times revenue.Gage in Michigan. Gage is doing in Michigan what Schwazze is doing in Colorado. Gage currently operates ten dispensaries in Michigan and three cultivation sites, with nine additional cultivation sites through contract growers. The firm has plans to open an additional ten dispensaries over the near term. Gage claims to be building the fastest growing cannabis brand in Michigan. The firm's product portfolio includes flower, edibles, vapes, and concentrates. The firm's average basket size of $158 in 1Q21 is nearly double the statewide average.Gage 2Q21 Numbers. Gage 2Q21 revenue jumped 49.9% to $26.4 million driven by cultivation capacity expansion, a new dispensary and strong same store sales growth. Significantly, gross margin rose to 34.2% from 26.1% sequentially partly due to increased in-house cultivation, what Schwazze's last two acquisitions should provide to Schwazze, in our view.Michigan Cannabis Market. Michigan is the third largest cannabis market in the U.S., only trailing California and Colorado, although it may overtake Colorado in the near future, driven by a population nearly double that in Colorado. Projected statewide adult use cannabis revenue for 2021 is in the $950 million-$1.2 billion range, with about 220 dispensaries in operation. Adult use sales are projected to hit $2-$2.5 billion by 2025.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 13.8x projected 2021 EBITDA on a fully diluted basis. We believe the recent proposed acquisition of Gage Growth provides support to our price target. Read More >>