In a coverage resumption on Thursday, Beacon Securities analyst Russell Stanley rates US cannabis company Ianthus Capital Holdings (Ianthus Capital Stock Quote, Chart CSE:IAN) a “Buy” with a 12-month target price of C$12.50, representing a projected return of 98 per cent.

Last week, Ianthus Capital —which owns and operates licensed cannabis cultivation, processing and dispensary facilities in the United States— announced an agreement to acquire MPX Bioceutical Corporation (CSE:MPX), a medical marijuana operation in Arizona, in an all-stock transaction.

Stanley calls the deal, expected to be completed in January, 2019, “the most significant near-term catalyst” for IAN, making it one of the largest multi-state operators in the US. The acquisition means IAN will gain a $50 million + revenue business in Arizona as well as growth assets in Nevada and Maryland. (All figures in US dollars unless noted otherwise.) The combined company will have an aggregate cultivation and production footprint of 212,100 sq. ft., potential expansion to 553,000 sq. ft., 15 dispensaries and licenses to grow that number to 56, says Stanley.

Ianthus Capital stock trading at a discount

“Cannabis companies with operations in the United States now trade an average multiple discount of 72 per cent relative to Canadian operators (9.9x vs. 35.1x EV/C2020E EBITDA, based on consensus expectations),” says the analyst. “We view this discount as unsustainably high, and expect multiples to converge as investors will eventually realize that US operating companies generally offer investors more established business models with far broader product suites and greater participation throughout the value chain (cultivation, manufacturing/production and retail).”

Stanley predicts Ianthus will produce revenue and adjusted EBITDA in 2019 of $201 million and $37 million, respectively, and revenue and adjusted EBITDA in 2020 of $336 million and $116 million, respectively.