In the midst of a complicated back and forth surrounding Aurora Cannabis’s (Aurora Cannabis Stock Quote, Chart, News: TSX:ACB) would-be hostile takeover of CanniMed Therapeutics (CanniMed Therapeutics Stock Quote, Chart, News: TSX:CMED), Echelon Wealth Partners analyst Russell Stanley says he is taking a conservative approach to valuing the latter. But the analyst says CanniMed could have much more upside potential than his target suggests.

Following hearings on December 20-21, the Financial and Consumer Affairs Authority of Saskatchewan and the Ontario Securities Commission jointly decided to reject Aurora Cannabis’s request to shorten the deposit period for its hostile acquisition. It’s a development that effectively requires the bid remain open the full 105 days to March 9, 2018. Meanwhile, CanniMed shareholders shareholders themselves are set to vote on the proposed acquisition of Newstrike Resources (TSXV:HIP) in January, a move that Aurora Cannabis has urged them to reject.

“We are pleased with the commissions’ decision and this is good news for CanniMed shareholders eager to support the Newstrike acquisition to create real and significant value, and confirms our belief that it was inappropriate for Aurora to seek to shorten the required bid deposit period and that disclosures made by Aurora were deficient and misleading,” Cannimed CEO Brent Zettl said in a press release today. “The Newstrike acquisition remains an excellent opportunity for CanniMed and its shareholders, and is clearly superior to Aurora’s inadequate hostile bid that offers phantom value based on an inflated Aurora share price. While we were disappointed that the commissions cease traded our shareholders rights plan, the rights plan was an appropriate and necessary response to the hostile bid and was beneficial to CanniMed and its shareholders as it provided the board time that was needed to consider the hostile bid and communicate with our shareholders who are eager to support the Newstrike acquisition.”

Stanley explains that the regulators decision was an case of each side getting something.

“The regulators also rejected CMED’s application for an order declaring that the locked up shareholders acted jointly with ACB in connection with the take-over bid, so the 36% of the stock subject to existing lock-up agreements will be included in the 50% minimum tender condition of the bid,” the analyst explains. “However, ACB will be required to amend its prior news releases and its takeover bid circular so that they specify how ACB became aware of a CMED board meeting on November 13th (the date that a draft of the agreement to acquire Newstrike Resources was presented to the CMED board). ACB will also be required to include any information that was obtained by anyone that then had a special relationship with CMED, and any other information that would reasonably be expected to impact CMED shareholder decision making. ACB indicated it will provide these disclosures on or before January 12, 2018. However, the regulators also cease traded the shareholder rights plan that CMED adopted in late November (see our November 29th note), effectively allowing ACB to enter additional lock-up agreements with other willing shareholders.”

In a research update to clients today, Stanley maintained his “Speculative Buy” rating and one-year price target of $24.00 on CanniMed Therapeutics, implying a return of 15 per cent at the time of publication. But the analyst says there could be much more than that modest upside in the stock.

“While our target price represents a modest return-to-target of 15%, we note that our formal estimates leave considerable upside potential for capacity expansion and product/revenue mix improvement. Additional potential catalysts for CMED include further M&A developments, improved financial results, expansion updates, and international initiatives.”

Stanley thinks CanniMed will generate Adjusted EBITDA of $5.8-million on revenue of $42.1-million in fiscal 2018. He expects those numbers will improve to EBITDA of $34.9-million on a topline of $85.2-million the following year.