M Partners has launched coverage of US cannabis play Vireo Health International (Vireo Health International Stock Quote, Chart CSE:VREO) with a “Buy” rating and C$9.25 target price, with analyst Damian Karp saying the IP-focused company is uniquely positioned as an innovation driver in the medical cannabis and hemp genetics fields.

On Tuesday, Karp initiated coverage by pointing to the valuation gap between Vireo, which had its CSE trading debut on March 20, 2019, and its peers, saying that despite being part of a select group of US multi-state operators (MSOs) with assets in ten or more states, VREO is very attractively priced at 6.5x 2021 EBITDA versus its US peers at 12.0x. The analyst says that Vireo should close that gap as it continues to build its footprint and expand its cultivation capacity and distribution network.

“Led by Dr. Kyle Kingsley, a former emergency medicine physician, the executive team has established a track record of winning merit-based licenses in attractive jurisdictions (Minnesota, New York, Pennsylvania, Maryland and Ohio),” says Karp.

“In 2018, the Company generated revenue of $18.5 million in Minnesota, New York and Pennsylvania. We believe Vireo will continue to make significant progress in all three markets as it rolls out new dispensaries, expands existing retail locations and begins to plant industrial hemp for IP development. We believe management’s proven ability to execute will be crucial in ensuring successful launches in seven new states (Maryland, Ohio, Rhode Island, Arizona, Nevada, Massachusetts and New Mexico) and in Puerto Rico and California, upon the closing of pending transactions,” he says.

Karp thinks that Vireo will generate fiscal 2019 Adjusted EBITDA of $10.5 million on revenue of $61.8 million and fiscal 2020 Adjusted EBITDA of $34.6 million on a top line of $144.2 million. (All figures in US dollars unless where noted otherwise.)

For catalysts, the analyst points to the company’s second quarter launch of Green Goods in Pennsylvania, the wholesaling of branded products to third-party dispensaries in Ohio, cultivation and processing increases at its facilities in Arizona, Minnesota, New Mexico and New York and the expansion of its medical programs in Minnesota and New York.

Karp’s C$9.25 target represents a projected 12-month return of 85 per cent at the time of publication.