Chemistree Technology Inc. (CSE:CHM) (OTCQB:CHMJF) received a vote of confidence from SmallCaps Investment Research last week, with the firm suggesting that CHM is "one of the cheapest cannabis stocks around" and an "extremely good buying opportunity."
The Belgium-based firm focused primarily on Chemistree's recent success at its Washington State operations, which reported a 36% increase in crop yield and a 30% increase in sales since April 2019. During the same period, the company also doubled its retail client stores from 25 to 50 stores.
What's more, the company has applied for additional cultivation space at its Sedro Wolley location which would also double its capacity from 5,000 square feet (sq ft) up to 10,000 sq ft. Construction is expected to be completed by the end of 2019 with additional revenue expected as early as Q1 2020.
Chemistree Stock is "Outstandingly Cheap"
Chemistree currently has a $4.3 million USD valuation which SmallCaps Investment Research thinks is "outstandingly cheap given the near-term upside potential of its Washington State operations on top of the long-term upside of the rest of its portfolio."
The research firm said the company's increased performance and increased capacity in 2020 will significantly increase its 2019 revenue, which is expected to reach $1.8 million USD, up from the initial $1.5 million USD projection. In 2020, Chemistree's revenue is expected to be between $3 million USD to $3.4 million USD with margins between 25%-30%.
At present, Chemistree is trading at a revenue multiple of 2.3X of 2019 revenue and 1.3X of the $1.3 2020 mid-point estimate.
"Such cheap valuations are absolutely unheard of in the cannabis sector with many companies trading well in excess of 10x revenue multiples. And this is just for one line of business," SmallCaps said in the report.
Chemistree Presents "Extremely Good Buying Opportunity"
The cannabis industry's summer bear market is continuing into the fall, with some of the biggest cannabis players experiencing 52-week lows and previously high-flying juniors down as much as 90% from their highs.
Some experts say the pot stock boom was built on hype, while others see this is the perfect opportunity to buy into the most promising stocks at a discount.
SmallCaps believe these challenging times make Chemistree an "extremely good buying opportunity" thanks to its "extremely low revenue multiple" and its strategically located operations.
The company has operations across California and Washington and has plenty of room for growth in additional states, especially if New Jersey votes in favor of legalization next year. In June, Chemistree completed a strategic investment in Applied Cannabis Sciences of New Jersey (ACS), a New Jersey-based medical vertically-integrated applicant.
What's more, having operations in the US protects Chemistree from the potential impact of changing perceptions in the Canadian cannabis industry. CHM is listed on the Canadian Securities Exchange, however its OTC listing has comparable volume, making it less susceptible to the CSE's downturn.
"We believe that the combination of a diverse asset base and experienced management – that has so far executed well in these early stages – with a dirt-cheap $4.3 million USD valuation makes Chemistree among the most attractive small-cap stocks in the cannabis sector," said SmallCaps Investment Research.
Chemistree share price was down 1.64% by 12 pm EST Wednesday on the OTC, however, it is up 36.36% since the start of the week following the release of the SmallCaps Investment Research report.
Investors interested in Chemistree will want to keep an eye on the company's expansion progress and its 2019 financial results later this year.
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