With branded products and distribution businesses operating in California, CannaRoyalty (CSE:CRZ) has access to the world’s largest pot market, says Jason Zandberg of PI Financial, who in a coverage launch on Monday rates CRZ a “Buy” with a 12-month price target of $8.00, representing a projected return of 76.6 per cent.

CannaRoyalty began trading on the CSE in December of 2016, having since raised roughly $75 million in capital. The Ottawa-headquartered company began as an investment firm but has since developed its products, logistics and distribution businesses. Outside of its California operations, the company has interests in five other states as well as in Canada and Puerto Rico.

Zandberg says CannaRoyalty has a critical mass of brands in California, which now represents the single largest cannabis market in the world.

“Up until recently, CRZ had been an investment company providing growth capital to cannabis businesses across North America. This activity not only provided management with the deep insight into the cannabis market but also provided a strong base of assets to operate in California,” says Zandberg. “Management expects to continue to monetize its previous investments through licensing or commercializing its portfolio in other strategic jurisdictions.”

“Not only does California represent the most mature cannabis market, as this state was the first recognized medical market in 1996, but its population base is 39.4 million people, marking it the largest single state (Texas is a distant second place at 28.0 million people) and larger than Canada (36 million people),” the analyst says.

Zandberg says that although US cannabis stocks are trading at multiples 50 per cent lower than their Canadian cannabis peers, he believes this relationship will reverse and US cannabis stocks will begin trading at a premium. The analyst forecasts revenue of $41.3 million, $100.0 million and $145.3 million in FY18, FY19 and FY20, respectively, and sees CRZ’s EBITDA and EPS hitting $32.1 million and $0.27, respectively, by 2020.

“We are initiating coverage of CannaRoyalty Corp. with a Buy rating (risk: Speculative) and a 12-month target of $8.00. Our target represents an EV/EBITDA of 13x and a P/E of 29x based on our FY20 estimates,” he writes.