After obtaining an update one of the latest mergers of two cannabis companies in the public space, a research report shows optimism for the new venture between WeedMD (TSXV:WMD) and Hiku Brands (CSE:HIKU).
The companies first announced the merger in April, stating the operations will combine and Hiku will become the majority stakeholder of the new enterprise.
“The combination of Hiku and WeedMD creates a cannabis company capable of fulfilling the vision of delivering the best in class experiences from in-store to product, from medical to adult-use, but also capturing full retail and wholesale margins,” Alan Gertner, CEO of Hiku said in the initial statement.
Hiku is a company focused on the brand appeal for the cannabis industry, by creating and nurturing a variety of brands appealing to legal users, the company also operates retail stores.
This year Hiku obtained one of the four issued retail licenses for the province of Manitoba, allowing the company to operate a network of dispensaries in the area once recreational retail sales are allowed by the Canadian government.
The two companies were able to confirm on Wednesday (June 13) the special shareholder meeting for WeedMD investors will be held on July 11 in Toronto. Shareholders of the company up to May 23 will be allowed to vote on the proposed merger.
WeedMD is a licensed producer of cannabis and oils in Canada for the medical market. The company holds a 26,000 square foot indoor facility and plans to create a production expansion of a 14-acre greenhouse.
Once the transaction is completed, existing HIKU and WMD shareholders will split the ownership of the company 51.75 percent and 48.25 percent respectively.
Analyst takeaway of the proposed merger
A research report issued on Thursday (June 14) from Greg McLeish, an analyst with Mackie Research Capital, maintained a ‘Buy’ rating for Hiku and a share price target of C$3.75.
The analyst is now projecting 2018 revenue for the company with 3,671 kilograms of cannabis sold. For 2019 Mackie Research is estimating 20,139 kilograms sold at an average selling price of C$5.17 per gram.
According to the report the new combined company will hold “pro-forma cash” of nearly C$70 million.
“This strong cash position will allow management to continue with its capital expansion plans, pursue strategic acquisitions, and address potential working capital requirements,” McLeish wrote.
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During an interview at the Lift & Co. Cannabis Expo held in Toronto in May, Aaron Salz, CEO of Stoic Advisory, told the Investing News Network (INN) consolidation activity like the WeedMD and Hiku merger was an example of a trend he had noticed in the space.
“I think you’ll see generally synergistic type deals where it’s companies trying to solve each other’s problems,” Salz said.
Since the merger announcement, Hiku has seen its stock decrease in value 19.05 percent, amounting for a C$0.32 loss, to reach a price per share of C$1.34 as of market close on Thursday. WeedMD has also seen its share price drop to C$1.82 at Thursday’s close, a 7.58 percent decline since the merger reveal.
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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Hiku Brands is a client of the Investing News Network. This article is not paid-for content.