|
F
igure
27: Sum-of-the-parts valuation
|
|
|
|
|
Market Cap
(C$M)
|
|
|
Price Per
Share
|
|
|
Enterprise
Value (C$M)
|
|
|
20E EBITDA
($M)
|
|
|
20E EBITDA
(C$M)
|
|
|
20E
EV/EBITDA
|
|
Massachusetts
|
|
|
309.9
|
|
|
|
1.19
|
|
|
|
317.7
|
|
|
|
52.1
|
|
|
|
67.7
|
|
|
|
4.7
|
|
Nevada
|
|
|
79.4
|
|
|
|
0.31
|
|
|
|
81.4
|
|
|
|
6.7
|
|
|
|
8.7
|
|
|
|
9.3
|
|
Total
|
|
|
389.3
|
|
|
|
1.50
|
|
|
|
399.0
|
|
|
|
58.8
|
|
|
|
76.4
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash ($M)
|
|
|
14.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash (C$M)
|
|
|
18.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt ($M)
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt (C$M)
|
|
|
28.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
260.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount Rate
|
|
|
12%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminal Growth
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Company reports, Canaccord Genuity estimates
|
|
|
We note that any variation to our CLSH share price assumption could result in a change to our share count assumption and price target. At C$0.80, the anticipated share issuance would have a 54% dilutive impact on the number of shares outstanding, while a C$0.25 share price would represent 174% dilution and a C$1.25 share price would have a 35% impact. Within these share price assumptions, we note that our price target could range between C$0.84 to C$1.71.
F
igure 28: Share issuance sensitivity
|
|
|
|
|
at time of
|
|
Issuance
|
|
|
Total Shares
|
|
|
Target
|
|
|
Impact
|
|
|
C$0.25
|
|
|
293.3
|
|
|
|
461.7
|
|
|
|
0.84
|
|
|
|
174
|
%
|
|
|
C$0.50
|
|
|
146.6
|
|
|
|
315.0
|
|
|
|
1.24
|
|
|
|
87
|
%
|
|
|
C$0.80
|
|
|
91.7
|
|
|
|
260.1
|
|
|
|
1.50
|
|
|
|
54
|
%
|
|
|
C$1.00
|
|
|
73.3
|
|
|
|
241.7
|
|
|
|
1.61
|
|
|
|
44
|
%
|
|
|
C$1.25
|
|
|
58.7
|
|
|
|
227.1
|
|
|
|
1.71
|
|
|
|
35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: Canaccord Genuity estimates
|
|
|
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
28
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
|
Relative valuation
On an EV/EBITDA basis, CLSH stock is currently trading at a multiple of 1.1x our 2020 estimate while on an EV/Revenue basis the stock is trading at 0.4x our 2020 estimate. Current CLSH multiples represent a significant discount to a peer group of US operators currently trading at an average EV/EBITDA multiple of 10x 2020 estimates and EV/Revenue multiple of 2.9x.
|
Figure 29: Peer group analysis
|
|
|
Ticker
|
|
Share
|
|
|
Market
|
|
|
EV/EBITDA
|
|
|
EV/Revenue
|
|
|
|
|
Price
|
|
|
Cap (M)
|
|
|
CY 2019 E
|
|
|
CY 2020 E
|
|
|
CY 2019 E
|
|
|
CY 2020 E
|
|
CLS Holdings
|
CLSH
|
|
|
0.29
|
|
|
|
74
|
|
|
3.3x
|
|
|
1.1x
|
|
|
1.1x
|
|
|
0.4x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1933 Industries
|
TGIF
|
|
|
0.58
|
|
|
|
135
|
|
|
14.7x
|
|
|
9.3x
|
|
|
3.6x
|
|
|
2.5x
|
|
Acreage Holdings
|
ACRG.U
|
|
|
21.16
|
|
|
|
2560
|
|
|
29.3x
|
|
|
11.9x
|
|
|
7.8x
|
|
|
3.8x
|
|
Charlotte's Web
|
CWEB
|
|
|
18.31
|
|
|
|
1950
|
|
|
24.5x
|
|
|
12.8x
|
|
|
8.7x
|
|
|
4.3x
|
|
Curaleaf
|
CURA
|
|
|
10.00
|
|
|
|
5010
|
|
|
26.7x
|
|
|
15.7x
|
|
|
9.4x
|
|
|
5.6x
|
|
DionyMed Holdings
|
DYME
|
|
|
3.60
|
|
|
|
315
|
|
|
8.6x
|
|
|
4.5x
|
|
|
1.4x
|
|
|
0.9x
|
|
Harvest Health and Rec.
|
HARV
|
|
|
10.65
|
|
|
|
3057
|
|
|
29.8x
|
|
|
10.4x
|
|
|
9.0x
|
|
|
3.1x
|
|
iAnthus Capital
|
IAN
|
|
|
7.66
|
|
|
|
1672
|
|
|
18.6x
|
|
|
12.2x
|
|
|
4.5x
|
|
|
3.5x
|
|
Kush Co Holdings
|
KSHB
|
|
|
5.94
|
|
|
|
466
|
|
|
956.7x
|
|
|
21.8x
|
|
|
3.3x
|
|
|
2.1x
|
|
Liberty Health Sciences
|
LHS
|
|
|
1.12
|
|
|
|
415
|
|
|
18.8x
|
|
|
8.3x
|
|
|
4.4x
|
|
|
2.6x
|
|
MedMen
|
MMEN
|
|
|
3.90
|
|
|
|
2551
|
|
|
74.9x
|
|
|
9.7x
|
|
|
4.9x
|
|
|
2.6x
|
|
MJardin
|
MJAR
|
|
|
4.50
|
|
|
|
334
|
|
|
5.7x
|
|
|
3.4x
|
|
|
2.8x
|
|
|
1.8x
|
|
Planet 13
|
PLTH
|
|
|
1.82
|
|
|
|
213
|
|
|
7.5x
|
|
|
4.8x
|
|
|
1.7x
|
|
|
1.3x
|
|
The Origin House
|
OH
|
|
|
9.35
|
|
|
|
694
|
|
|
16.5x
|
|
|
8.4x
|
|
|
3.8x
|
|
|
2.3x
|
|
TILT
|
TILT
|
|
|
3.23
|
|
|
|
1413
|
|
|
7.2x
|
|
|
3.4x
|
|
|
2.3x
|
|
|
1.3x
|
|
Trulieve
|
TRUL
|
|
|
17.67
|
|
|
|
1950
|
|
|
16.6x
|
|
|
11.8x
|
|
|
6.8x
|
|
|
5.1x
|
|
Average of U.S. companies
|
|
|
|
|
|
|
|
|
|
|
83.7x
|
|
|
9.9x
|
|
|
5.0x
|
|
|
2.9x
|
|
Source: Priced Intraday 2.21.19, FactSet, Canaccord Genuity estimates, Financial metrics represent C$ except for KSHB which is US $.
CLSH, DYME, KSHB, MJAR, PLTH, TGIF and TILT are covered by Bobby Burleson Canaccord Genuity LLC (US), ACRG, HARV, IAN, LHS, OH, MMEN and TRUL are covered by Matt Bottomley, Canaccord Genuity Corp (Canada), CWEB is covered by Derek Dley, Canaccord Genuity Corp (Canada).
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
2
9
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
|
Senior management
CLSH senior management and the board of directors have control through direct and indirect ownership of approximately 32% of basic shares outstanding and have a lock- up period that extends through November.
Jeffrey Binder, Chairman of the Board and Chief Executive Officer
Mr. Binder was part of the founding group of CLS Labs in 2014 and has been the Chairman and CEO since inception. Prior to CLSH, Mr. Binder founded and was the Chairman and President of Power 3 Network, Inc. which was formed in 2008. Power 3 Network is a company which develops websites and back office capabilities for home- based business operations. Mr. Binder has a law degree from the National Law Center at George Washington University.
Frank Tarantino, Chief Financial Officer
Mr. Tarantino joined CLSH in 2018 after having been the Controller and Acting CFO of Ira Green Holdings in 2017 and before that the CFO of Duto Textiles in 2015 and 2016. Prior to his position at Duto Textiles, Mr. Tarantino was the COO and CFO of Wild Things LLC from 2008 until 2015. Mr. Tarantino has a Bachelor of Science degree from Babson College and is a Certified Public Accountant.
Andrew Glashow, Director
Mr. Glashow is the Managing Director of New World Merchant Partners, an investment banking company which specializes in microcap investments. Prior to founding New World Partners, Mr. Glashow was a Partner at STAR Associates, a corporate finance firm. Mr. Glashow has a degree from the University of New Hampshire.
|
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
30
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
Figure 30: FY income statement
|
FY 2018E
|
|
Q1'19E
|
|
Q2'19E
|
|
Q3'19E
|
|
Q4'19E
|
|
FY 2019E
|
|
Q1'20E
|
|
Q2'20E
|
|
Q3'20E
|
|
Q4'20E
|
|
FY 2020E
|
|
Dec-18
|
|
Mar-19
|
|
Jun-19
|
|
Sep-19
|
|
Dec-19
|
|
Dec-19
|
|
Mar-20
|
|
Jun-20
|
|
Sep-20
|
|
Dec-20
|
|
Dec-20
|
Revenue
|
|
5.1
|
|
|
3.5
|
|
|
3.9
|
|
|
4.2
|
|
|
48.9
|
|
60.5
|
|
|
25.1
|
|
|
39.6
|
|
|
41.5
|
|
|
41.5
|
|
147.7
|
COGS
|
|
|
|
|
1.9
|
|
|
2.1
|
|
|
2.2
|
|
|
25.5
|
|
31.7
|
|
|
12.0
|
|
|
16.3
|
|
|
17.1
|
|
|
17.1
|
|
62
|
Gross Profit
|
|
2.3
|
|
|
1.6
|
|
|
1.9
|
|
|
2.0
|
|
|
23.4
|
|
28.8
|
|
|
13.1
|
|
|
23.3
|
|
|
24.4
|
|
|
24.4
|
|
85
|
SG&A
|
|
16.7
|
|
|
1.3
|
|
|
1.3
|
|
|
1.3
|
|
|
5.3
|
|
9.0
|
|
|
6.6
|
|
|
6.6
|
|
|
6.6
|
|
|
6.6
|
|
26
|
Op Profit
|
|
(14.4)
|
|
|
0.4
|
|
|
0.6
|
|
|
0.7
|
|
|
18.1
|
|
19.8
|
|
|
6.5
|
|
|
16.7
|
|
|
17.8
|
|
|
17.8
|
|
59
|
Interest
|
|
1.5
|
|
|
1.5
|
|
|
1.5
|
|
|
2.0
|
|
|
2.0
|
|
7.0
|
|
|
2.0
|
|
|
2.0
|
|
|
2.0
|
|
|
2.0
|
|
8
|
Total other Expense
|
|
1.5
|
|
|
1.5
|
|
|
1.5
|
|
|
2.0
|
|
|
2.0
|
|
7.0
|
|
|
2.0
|
|
|
2.0
|
|
|
2.0
|
|
|
2.0
|
|
8
|
Pretax Income
|
|
(15.9)
|
|
|
(1.1)
|
|
|
(0.9)
|
|
|
(1.3)
|
|
|
16.1
|
|
12.8
|
|
|
4.5
|
|
|
14.7
|
|
|
15.8
|
|
|
15.8
|
|
51
|
Income Tax
|
|
‒
|
|
|
‒
|
|
|
‒
|
|
|
‒
|
|
|
‒
|
|
‒
|
|
|
1.1
|
|
|
3.7
|
|
|
4.0
|
|
|
4.0
|
|
13
|
Net Income
|
|
(15.9)
|
|
|
(1.1)
|
|
|
(0.9)
|
|
|
(1.3)
|
|
|
16.1
|
|
12.8
|
|
|
3.3
|
|
|
11.0
|
|
|
11.9
|
|
|
11.9
|
|
38.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS
|
|
(0.09)
|
|
|
(0.01)
|
|
|
(0.01)
|
|
|
(0.01)
|
|
|
0.10
|
|
0.1
|
|
|
0.02
|
|
|
0.07
|
|
|
0.07
|
|
|
0.07
|
|
0.23
|
Shares
|
|
168.4
|
|
|
168.4
|
|
|
168.4
|
|
|
168.4
|
|
|
168.4
|
|
168.4
|
|
|
168.4
|
|
|
168.4
|
|
|
168.4
|
|
|
168.4
|
|
168.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
(14)
|
|
|
0
|
|
|
1
|
|
|
1
|
|
|
18
|
|
19.8
|
|
|
6
|
|
|
17
|
|
|
18
|
|
|
18
|
|
58.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Margin
|
|
45%
|
|
|
46%
|
|
|
47%
|
|
|
47%
|
|
|
48%
|
|
48%
|
|
|
52%
|
|
|
59%
|
|
|
59%
|
|
|
59%
|
|
58%
|
SG&A
|
|
327%
|
|
|
35%
|
|
|
32%
|
|
|
30%
|
|
|
11%
|
|
15%
|
|
|
26%
|
|
|
17%
|
|
|
16%
|
|
|
16%
|
|
18%
|
Op Margin
|
|
-282%
|
|
|
10%
|
|
|
16%
|
|
|
17%
|
|
|
37%
|
|
33%
|
|
|
26%
|
|
|
42%
|
|
|
43%
|
|
|
43%
|
|
40%
|
Tax Rate
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
|
0%
|
|
0%
|
|
|
25%
|
|
|
25%
|
|
|
25%
|
|
|
25%
|
|
25%
|
EBITDA Margin
|
|
-282%
|
|
|
10%
|
|
|
16%
|
|
|
17%
|
|
|
37%
|
|
33%
|
|
|
26%
|
|
|
42%
|
|
|
43%
|
|
|
43%
|
|
40%
|
Net Income
|
|
-312%
|
|
|
-32%
|
|
|
-23%
|
|
|
-31%
|
|
|
33%
|
|
21%
|
|
|
13%
|
|
|
28%
|
|
|
29%
|
|
|
29%
|
|
26%
|
Source: Company reports, Canaccord Genuity estimates. A more detailed financial model, including balance sheet, income statement, and cash flow projections, if available, may be obtained by contacting your Canaccord Genuity Sales Person or the Authoring Analyst, whose contact information appears on the front page of this report.
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
31
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
|
Appendix 1:
Federal outlook: path to legalization
|
|
Despite liberalizing attitudes toward marijuana and increasing legalization at the state level, the US federal government continues to ban cannabis under the Controlled Substance Act (CSA). Over the past few years, there has been movement at the federal level toward decriminalization. During the Obama presidency, the Justice Department issued guidance that deprioritized marijuana enforcement (the Cole Memo, since rescinded), and the current Congress has more marijuana reform bills than ever attempting to work their way toward approval. Nevertheless, it will likely take several years for marijuana to achieve broader federal legal status, and many roadblocks remain. The following section looks at potential pathways toward legalization at the federal level, important milestones along the way, and some of the laws currently in place that govern marijuana federally in the US.
We note that as expected, the midterm elections last year delivered several cannabis industry wins including Democrats taking the majority in the House of Representatives. We believe that the Democrat controlled House could grease the wheels for the STATES Act.
Pathway to federal legalization
The industry is increasingly optimistic regarding an eventual federal legalization and an unprecedented number of marijuana reform bills are currently working their way (albeit slowly) through Congress. In total, the 115th session of Congress (which began in January of 2017 and runs until January 2019) sponsored 41 marijuana reform bills, 27 in the House and 14 in the Senate. The Senate’s 14 bills are more than the cumulative total seen during the 17 years prior to this session. We are focusing on five bills of note, including the recently passed Farm Bill.
STATES Act
A recent bipartisan bill called the STATES (Strengthening the Tenth Amendment through Entrusting States) Act shows growing support spanning the political spectrum for states’ rights with respect to regulating marijuana. The STATES Act essentially proposes that federal law defer to state law where marijuana is concerned (it also would remove industrial hemp from the definition of marijuana in the CSA). Ironically, some of the impetus for the bill may have come from Attorney General Jeff Sessions’ rescission of the Cole Memo last January, an action condemned by the bill’s Republican co-sponsor Cory Gardner of Colorado.
Farm Bill
Last December, President Trump signed into law the Agriculture Improvement Act of 2018 (the 2018 Farm Bill). The bill removes industrial hemp and all extracts containing less than 0.3% concentration of THC from the Controlled Substances Act. It is now legal to manufacture, distribute and sell hemp-derived cannabidiol (CBD) anywhere in the US and across state boundaries. In our view the passing of the Farm Bill is transformational for the commercialization of products containing industrial hemp, including hemp-derived extracts such as CBD. We believe companies producing/marketing products containing hemp-derived CBD stand to benefit both in terms of growth opportunity and access to capital.
|
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
32
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
|
Regulate Marijuana Like Alcohol Act
The Regulate Marijuana Like Alcohol Act (H.R. 420) was introduced in Congress in January. The proposed bill would remove cannabis from the list of federally controlled substances and establish regulatory authority for cannabis through the Bureau of Alcohol, Tobacco, Firearms and Explosives. Further, the bill would allow for federal permitting for cultivation, packaging, selling and importing of marijuana. Shipping and transporting cannabis into states that have not legalized cannabis operations would remain prohibited under the proposed legislation.
Marijuana Justice Act
Introduced in 2017 by Sen. Cory Booker (D-NJ), the Marijuana Justice Act would remove marijuana from the list of controlled substances and erase the records of criminal marijuana convictions. It would also create a $500M fund focused on community reinvestment in the form of job training in the cannabis industry. Senators Ron Wyden (D-OR), Kirsten Gillibrand (D-NY), and Bernie Sanders (I-VT) cosponsor the bill, while Representatives Barbara Lee (D-CA) and Ro Khanna (D-CA) introduced a companion measure with over 20 co-sponsors in the House. We do not expect bipartisan support for the Marijuana Justice Act.
VA Medical Cannabis Research Act
Another key piece of pending legislation is the VA Medicinal Cannabis Research Act of 2018. While hundreds of marijuana bills have been filed to date, this is the first to get a vote (it was place on the Union Calendar on 5/18/2018). The bill would authorize the Department of Veterans Affairs (VA) “to conduct and support research on the efficacy and safety of certain forms of cannabis and cannabis delivery for veterans enrolled in the VA health care system diagnosed with conditions such as chronic pain or post-traumatic stress disorder.” Though fairly limited in scope, it has bipartisan support, and could contribute data toward a growing body of evidence that shows medical benefits of cannabis, in direct contradiction with Schedule I classification within the CSA. Beyond these and other bills, the FDA’s recent approval of Epidiolex, a plant-based cannabis-derived pharmaceutical, and continuing momentum for legalization on the state level appear to portend inevitable federal legal status.
Figure 42: Key cannabis legalization bills
|
|
States Act
|
Federal law defers to state law where marijuana is concerned.
|
|
|
Hemp Farming Act
|
Legalizes the cultivation, processing and sale of industrial hemp.
|
|
|
Marijuana Justice Act
|
Would remove marijuana from the list of controlled substances and erase the records for criminal marijuana convictions.
|
|
|
VA Medical Cannabis Research Act
|
Authorizes the Dept of Veterans Affairs to support research on the efficacy and safety of certain forms of cannabis delivery for veterans.
|
|
|
Source: Canaccord Genuity research
|
|
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
3
3
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
|
Appendix 2:
Key extraction methods
|
|
●
CO2 extraction:
Deemed safe by the FDA, CO2 extraction uses pressurized carbon dioxide to extract compounds from cannabis. CO2 acts like a solvent when pressurized and heated, allowing compounds to dissolve and separate from plant before the CO2 evaporates, leaving behind concentrated cannabinoids and terpenes. Because CO2 is non-volatile, it is considered safer than other solvent- based extraction methods. CO2 extraction is either supercritical (the more commonly known process) or subcritical, distinguished by either high or low levels of temperature and pressure. CO2 is the most expensive method of solvent-based extraction, and product extracted using CO2 is oftentimes marketed as purer.
●
Butane extraction:
A form of hydrocarbon extraction (sometimes uses propane), butane extraction chemically removes cannabinoids and terpenes from plant material. While it preserves terpenes, its residual solvents and potential for combustion are leading to tighter regulation.
●
Ethanol extraction:
Another chemical process for separating cannabinoids and terpenes from plant matter, ethanol extraction is considered safer than butane extraction. Unfortunately, it also extracts chlorophyll and other undesirable compounds that leave behind an unpleasant odor.
●
Solvent-free extraction methods:
One of the oldest cannabis extracts, hash is traditionally extracted using solvent-less ice water process to separate the trichomes from the plant. The trichomes stick together and are pressed upon drying. Hash can also be made solvent-free using what is called the “dry sift” method. This method involves freezing flower, breaking it into small pieces, and sifting out the trichomes. Once again, the resulting material is pressed into hash. More recently, solvent extraction processes have also been used to make hash. Kief are the small white crystals on the flower, and they contain the largest amount of cannabinoids and terpenes. Extraction does not involve solvents, instead relying on a three-chamber grinder that separates the kief from the plant where it ultimately resides in the bottom chamber. Rosin is an extract with very high THC and terpene content, made using flower, hash or kief. Heat and pressure are applied to the material in order to produce a translucent liquid.
|
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
34
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
Appendix: Important Disclosures
Analyst Certification
Each authoring analyst of Canaccord Genuity whose name appears on the front page of this research hereby certifies that (i) the recommendations and opinions expressed in this research accurately reflect the authoring analyst’s personal, independent and objective views about any and all of the designated investments or relevant issuers discussed herein that are within such authoring analyst’s coverage universe and (ii) no part of the authoring analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by the authoring analyst in the research.
Analysts employed outside the US are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Sector Coverage
Individuals identified as “Sector Coverage” cover a subject company’s industry in the identified jurisdiction, but are not authoring analysts of the report.
Investment Recommendation
Date and time of first dissemination: February 22, 2019, 05:14 ET
Date and time of production: February 22, 2019, 05:14 ET
Target Price / Valuation Methodology:
CLS Holdings USA - CLSH.U
Our C$1.50 price target for CLSH is based on a sum-of-the-parts discounted cash flow analysis of the company’s MA and NV operations, including the Brockton and Leicester acquisitions.
Distribution of Ratings:
Global Stock Ratings (as of 02/22/19)
Rating
|
|
Coverage Universe
|
|
|
IR Clients
|
|
|
|
|
#
|
|
|
%
|
|
|
%
|
|
|
Buy
|
|
|
542
|
|
|
|
60.69
|
%
|
|
|
47.05
|
%
|
|
Hold
|
|
|
210
|
|
|
|
23.52
|
%
|
|
|
30.00
|
%
|
|
Sell
|
|
|
18
|
|
|
|
2.02
|
%
|
|
|
22.22
|
%
|
|
Speculative Buy
|
|
|
123
|
|
|
|
13.77
|
%
|
|
|
70.73
|
%
|
|
|
|
|
893*
|
|
|
|
100.0
|
%
|
|
|
|
|
|
*Total includes stocks that are Under Review
Canaccord Genuity Ratings System
BUY
: The stock is expected to generate risk-adjusted returns of over 10% during the next 12 months.
HOLD
: The stock is expected to generate risk-adjusted returns of 0-10% during the next 12 months.
SELL
: The stock is expected to generate negative risk-adjusted returns during the next 12 months.
NOT RATED:
Canaccord Genuity does not provide research coverage of the relevant issuer.
“Risk-adjusted return” refers to the expected return in relation to the amount of risk associated with the designated investment or the relevant issuer.
Risk Qualifier
SPECULATIVE
: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in the stock may result in material loss.
12-Month Recommendation History
(as of date same as the
Global Stock Ratings
table)
A list of all the recommendations on any issuer under coverage that was disseminated during the preceding 12-month period may be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures- mar.canaccordgenuity.com/EN/Pages/default.aspx
Required Company-Specific Disclosures (as of date of this publication)
CLS Holdings USA currently is, or in the past 12 months was, a client of Canaccord Genuity or its affiliated companies. During this period, Canaccord Genuity or its affiliated companies provided investment banking services to CLS Holdings USA.
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
3
5
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
In the past 12 months, Canaccord Genuity or its affiliated companies have received compensation for Investment Banking services from CLS Holdings USA .
In the past 12 months, Canaccord Genuity or any of its affiliated companies have been lead manager, co-lead manager or co-manager of a public offering of securities of CLS Holdings USA or any publicly disclosed offer of securities of CLS Holdings USA or in any related derivatives.
Canaccord Genuity or one or more of its affiliated companies is a market maker or liquidity provider in the securities of CLS Holdings USA or in any related derivatives.
Canaccord Genuity or one or more of its affiliated companies intend to seek or expect to receive compensation for Investment Banking services from CLS Holdings USA in the next three months.
As of the month end immediately preceding the date of publication of this research, or the prior month end if publication is within 10 days following a month end, Canaccord Genuity or its affiliated companies, in the aggregate, beneficially owned 1% or more of any class of the total issued share capital or other common equity securities of CLS Holdings USA or held any other financial interests in CLS Holdings USA which are significant in relation to the research (as disclosed below).
Past performance
In line with Article 44(4)(b), MiFID II Delegated Regulation, we disclose price performance for the preceding five years or the whole period for which the financial instrument has been offered or investment service provided where less than five years. Please note price history refers to actual past performance, and that past performance is not a reliable indicator of future price and/or performance.
Online Disclosures
Up-to-date disclosures may be obtained at the following website (provided as a hyperlink if this report is being read electronically) http://disclosures.canaccordgenuity.com/EN/Pages/default.aspx; or by sending a request to Canaccord Genuity Corp. Research, Attn: Disclosures, P.O. Box 10337 Pacific Centre, 2200-609 Granville Street, Vancouver, BC, Canada V7Y 1H2; or by sending a request by email to disclosures@cgf.com. The reader may also obtain a copy of Canaccord Genuity’s policies and procedures regarding the dissemination of research by following the steps outlined above.
General Disclaimers
See “Required Company-Specific Disclosures” above for any of the following disclosures required as to companies referred to in this report: manager or co-manager roles; 1% or other ownership; compensation for certain services; types of client relationships; research analyst conflicts; managed/co-managed public offerings in prior periods; directorships; market making in equity securities and related derivatives. For reports identified above as compendium reports, the foregoing required company-specific disclosures can be found in a hyperlink located in the section labeled, “Compendium Reports.” “Canaccord Genuity” is the business name used by certain wholly owned subsidiaries of Canaccord Genuity Group Inc., including Canaccord Genuity LLC, Canaccord Genuity Limited, Canaccord Genuity Corp., and Canaccord Genuity (Australia) Limited, an affiliated company that is 50%-owned by Canaccord Genuity Group Inc.
The authoring analysts who are responsible for the preparation of this research are employed by Canaccord Genuity Corp. a Canadian broker-dealer with principal offices located in Vancouver, Calgary, Toronto, Montreal, or Canaccord Genuity LLC, a US broker-dealer with principal offices located in New York, Boston, San Francisco and Houston, or Canaccord Genuity Limited., a UK broker-dealer with principal offices located in London (UK) and Dublin (Ireland), or Canaccord Genuity (Australia) Limited, an Australian broker-dealer with principal offices located in Sydney and Melbourne.
The authoring analysts who are responsible for the preparation of this research have received (or will receive) compensation based upon (among other factors) the Investment Banking revenues and general profits of Canaccord Genuity. However, such authoring analysts have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Investment Banking activities, or to recommendations contained in the research.
Some regulators require that a firm must establish, implement and make available a policy for managing conflicts of interest arising as a result of publication or distribution of research. This research has been prepared in accordance with Canaccord Genuity’s policy on
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
36
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
managing conflicts of interest, and information barriers or firewalls have been used where appropriate. Canaccord Genuity’s policy is available upon request.
The information contained in this research has been compiled by Canaccord Genuity from sources believed to be reliable, but (with the exception of the information about Canaccord Genuity) no representation or warranty, express or implied, is made by Canaccord Genuity, its affiliated companies or any other person as to its fairness, accuracy, completeness or correctness. Canaccord Genuity has not independently verified the facts, assumptions, and estimates contained herein. All estimates, opinions and other information contained in this research constitute Canaccord Genuity’s judgement as of the date of this research, are subject to change without notice and are provided in good faith but without legal responsibility or liability.
From time to time, Canaccord Genuity salespeople, traders, and other professionals provide oral or written market commentary or trading strategies to our clients and our principal trading desk that reflect opinions that are contrary to the opinions expressed in this research. Canaccord Genuity’s affiliates, principal trading desk, and investing businesses also from time to time make investment decisions that are inconsistent with the recommendations or views expressed in this research.
This research is provided for information purposes only and does not constitute an offer or solicitation to buy or sell any designated investments discussed herein in any jurisdiction where such offer or solicitation would be prohibited. As a result, the designated investments discussed in this research may not be eligible for sale in some jurisdictions. This research is not, and under no circumstances should be construed as, a solicitation to act as a securities broker or dealer in any jurisdiction by any person or company that is not legally permitted to carry on the business of a securities broker or dealer in that jurisdiction. This material is prepared for general circulation to clients and does not have regard to the investment objectives, financial situation or particular needs of any particular person. Investors should obtain advice based on their own individual circumstances before making an investment decision. To the fullest extent permitted by law, none of Canaccord Genuity, its affiliated companies or any other person accepts any liability whatsoever for any direct or consequential loss arising from or relating to any use of the information contained in this research.
Research Distribution Policy
Canaccord Genuity research is posted on the Canaccord Genuity Research Portal and will be available simultaneously for access by all of Canaccord Genuity’s customers who are entitled to receive the firm's research. In addition research may be distributed by the firm’s sales and trading personnel via email, instant message or other electronic means. Customers entitled to receive research may also receive it via third party vendors. Until such time as research is made available to Canaccord Genuity’s customers as described above, Authoring Analysts will not discuss the contents of their research with Sales and Trading or Investment Banking employees without prior compliance consent.
For further information about the proprietary model(s) associated with the covered issuer(s) in this research report, clients should contact their local sales representative.
Short-Term Trade Ideas
Research Analysts may, from time to time, discuss “short-term trade ideas” in research reports. A short-term trade idea offers a near- term view on how a security may trade, based on market and trading events or catalysts, and the resulting trading opportunity that may be available. Any such trading strategies are distinct from and do not affect the analysts' fundamental equity rating for such stocks. A short-term trade idea may differ from the price targets and recommendations in our published research reports that reflect the research analyst's views of the longer-term (i.e. one-year or greater) prospects of the subject company, as a result of the differing time horizons, methodologies and/or other factors. It is possible, for example, that a subject company's common equity that is considered a long-term ‘Hold' or 'Sell' might present a short-term buying opportunity as a result of temporary selling pressure in the market or for other reasons described in the research report; conversely, a subject company's stock rated a long-term 'Buy' or “Speculative Buy’ could be considered susceptible to a downward price correction, or other factors may exist that lead the research analyst to suggest a sale over the short-term. Short-term trade ideas are not ratings, nor are they part of any ratings system, and the firm does not intend, and does not undertake any obligation, to maintain or update short-term trade ideas. Short-term trade ideas are not suitable for all investors and are not tailored to individual investor circumstances and objectives, and investors should make their own independent decisions regarding any securities or strategies discussed herein. Please contact your salesperson for more information regarding Canaccord Genuity’s research.
For Canadian Residents:
This research has been approved by Canaccord Genuity Corp., which accepts sole responsibility for this research and its dissemination in Canada. Canaccord Genuity Corp. is registered and regulated by the Investment Industry Regulatory Organization of Canada (IIROC) and is a Member of the Canadian Investor Protection Fund. Canadian clients wishing to effect transactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity Corp. in their particular province or territory.
For United States Persons:
Canaccord Genuity LLC, a US registered broker-dealer, accepts responsibility for this research and its dissemination in the United States. This research is intended for distribution in the United States only to certain US institutional investors. US clients wishing to effect transactions in any designated investment discussed should do so through a qualified salesperson of Canaccord Genuity LLC. Analysts employed outside the US, as specifically indicated elsewhere in this report, are not registered as research analysts with FINRA. These analysts may not be associated persons of Canaccord Genuity LLC and therefore may not be subject to the FINRA Rule 2241 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
37
|
|
CLS
Holdings
USA
Initiation
of
Coverage
|
For United Kingdom and European Residents:
This research is distributed in the United Kingdom and elsewhere Europe, as third party research by Canaccord Genuity Limited, which is authorized and regulated by the Financial Conduct Authority. This research is for distribution only to persons who are Eligible Counterparties or Professional Clients only and is exempt from the general restrictions in section 21 of the Financial Services and Markets Act 2000 on the communication of invitations or inducements to engage in investment activity on the grounds that it is being distributed in the United Kingdom only to persons of a kind described in Article 19(5) (Investment Professionals) and 49(2) (High Net Worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended). It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. This material is not for distribution in the United Kingdom or elsewhere in Europe to retail clients, as defined under the rules of the Financial Conduct Authority.
For Jersey, Guernsey and Isle of Man Residents:
This research is sent to you by Canaccord Genuity Wealth (International) Limited (CGWI) for information purposes and is not to be construed as a solicitation or an offer to purchase or sell investments or related financial instruments. This research has been produced by an affiliate of CGWI for circulation to its institutional clients and also CGWI. Its contents have been approved by CGWI and we are providing it to you on the basis that we believe it to be of interest to you. This statement should be read in conjunction with your client agreement, CGWI's current terms of business and the other disclosures and disclaimers contained within this research. If you are in any doubt, you should consult your financial adviser.
CGWI is licensed and regulated by the Guernsey Financial Services Commission, the Jersey Financial Services Commission and the Isle of Man Financial Supervision Commission. CGWI is registered in Guernsey and is a wholly owned subsidiary of Canaccord Genuity Group Inc.
For Australian Residents:
This research is distributed in Australia by Canaccord Genuity (Australia) Limited ABN 19 075 071 466 holder of AFS Licence No 234666. To the extent that this research contains any advice, this is limited to general advice only. Recipients should take into account their own personal circumstances before making an investment decision. Clients wishing to effect any transactions in any financial products discussed in the research should do so through a qualified representative of Canaccord Genuity (Australia) Limited. Canaccord Genuity Wealth Management is a division of Canaccord Genuity (Australia) Limited.
For Hong Kong Residents:
This research is distributed in Hong Kong by Canaccord Genuity (Hong Kong) Limited which is licensed by the Securities and Futures Commission. This research is only intended for persons who fall within the definition of professional investor as defined in the Securities and Futures Ordinance. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons. Recipients of this report can contact Canaccord Genuity (Hong Kong) Limited. (Contact Tel: +852 3919 2561) in respect of any matters arising from, or in connection with, this research.
Additional information is available on request.
Copyright © Canaccord Genuity Corp. 2019 – Member IIROC/Canadian Investor Protection Fund
Copyright © Canaccord Genuity Limited. 2019 – Member LSE, authorized and regulated by the Financial Conduct Authority.
Copyright © Canaccord Genuity LLC 2019 – Member FINRA/SIPC
Copyright © Canaccord Genuity (Australia) Limited. 2019 – Participant of ASX Group, Chi-x Australia and of the NSX. Authorized and regulated by ASIC.
All rights reserved. All material presented in this document, unless specifically indicated otherwise, is under copyright to Canaccord Genuity Corp., Canaccord Genuity Limited, Canaccord Genuity LLC or Canaccord Genuity Group Inc. None of the material, nor its content, nor any copy of it, may be altered in any way, or transmitted to or distributed to any other party, without the prior express written permission of the entities listed above.
None of the material, nor its content, nor any copy of it, may be altered in any way, reproduced, or distributed to any other party including by way of any form of social media, without the prior express written permission of the entities listed above.
Speculative
Buy
Target
Price
C$1.50
|
22
February
2019
|
Cannabis
38
|
CLS Holdings USA (QB) (USOTC:CLSH)
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