Following the company’s recent financing, GMP Securities analyst Robert Fagan has resumed coverage of Green Thumb Industries (Green Thumb Industries Stock Quote, Chart CSE:GTII) with a “Buy” rating and a new one-year price target of $35.00 (was $13.00).

On Wednesday, GTII announced it had closed a $101.66-million bought deal financing that was led by GMP and included a syndicate of Cormark, Beacon, Echelon and Eight Capital.

Fagan says his new target comes about because of the possibility of transformative M&A due to the company’s reinforced balance sheet.

“Pro-forma this financing, the company’s C$80m financing completed in August, and expected consideration of ~$90m to be paid for pending acquisitions in NY and FL, we estimate the company’s freely deployable cash position at ~$150–160m currently,” the analyst notes. “In addition to building out its wholesale and distribution capacity, we expect GTI could focus its use of proceeds on M&A activity. In respect of this, we also anticipate GTI could use equity to boost its buying power, employing a structure similar to that used by MMEN in AZ (20% cash, 80% stock), as sellers increasingly seek upside participation.

Fagan thinks Green Thumb will generate EBITDA of $1.0-million on revenue of $64.0-million in fiscal 2018. He expects those numbers will improve to EBITDA of $44.2-million on a topline of $181.1-million the following year.

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“While our forecasts remain unchanged, given the significant purchasing capacity implied by GTI’s cash position, we are now including a potential M&A scenario in our valuation,” the analyst explains. We have assumed GTI deploys half of its cash, or ~$78m to new acquisitions, and leverages this at 80% with equity, resulting in ~$400m of buying power. We assume an acquisition multiple of 6x EBITDA, the top end of the historical range for private cannabis operators given the recent uptrend in valuations. We assume equity paid to acquisition targets at $22/share, resulting in ~19m shares issued. Overall our scenario would result in GTI acquiring ~$70m of EBITDA, bringing its total in 2020 to ~$220m, and shares o/s to ~173m.

Fagan’s new target implied a return of 52.6 per cent at the time of publication.