Q1/2018 could be the breakout quarter for cannabis licensed producer Cronos Group (Cronos Group Stock Quote, Chart: TSXV:CRON, NASDAQ:CRON), says analyst Vahan Ajamian of Beacon Securities, who says that the cannabis space is going to take off during the months leading up to rec legalization, with Cronos leading the way.

In a note to clients on Friday, the analyst maintained his “Buy” rating but doubled his target price from $5.25 to $10.50 for CRON.

Ahead of Cronos’ first quarter fiscal 2018 financials (expected on May 15), Ajamian recounts the numerous wins for the company over recent months, including obtaining a $40 million construction loan, building the world’s largest purpose built indoor facility, becoming the first Canadian cannabis company to list on a US exchange, setting up cultivation in Israel and distribution in Germany and announcing a joint venture with MedMen Enterprises cannabis retail and brand company in the US.

“We believe Cronos’ shares are set up nicely to outperform from a trading/macro perspective,” says the analyst. “Cronos is traditionally the torquiest name in the sector, frequently the best performer in hot markets. Currently down almost 50 per cent from its all-time high, we believe Cronos is well positioned to lead the way again given the likelihood that the sector takes off either as a result of a potential imminent ‘M&A frenzy’ and/or heightened investor enthusiasm in the run up to recreational legalization.”

For F1/FY18, Ajamian is forecasting revenue of $2.9 million and an EBITDA of negative $263,000. For fiscal 2018, the analyst’s revised estimates include revenues of $19.5 million (was $23.4 million), EBITDA of negative $6.3 million (was $4.2 million) and EPS of negative $0.04 (was negative $0.01).

The analyst’s DCF valuation results in a target price of $10.50, which represents a projected return on investment of 38 per cent at the time of publication.