Canadian cannabis company HEXO (HEXO Stock Quote, Chart TSX:HEXO) gets the nod from AltaCorp Capital’s David Kideckel, who launched coverage of the stock last Friday with an “Outperform” rating and one-year target price of $10.50.

Kideckel says HEXO’s focus on strategic partnerships combined with management’s proven ability to execute make for a solid future for the Gatineau, Quebec, licensed producer.

“As the market dynamics of the cannabis industry continue to evolve towards a focus on derivative products, including consumer packaged goods products and pharmaceuticals, we believe that HEXO’s business model, prioritizing operational scalability, product innovation and brand leadership, will ultimately position them as a trusted partner to Fortune 500 companies. The Company’s trend-setting partnership with Molson Coors is a major step in HEXO’s quest towards enhanced market leadership,” writes Kideckel.

The analyst points to HEXO already-solid distribution in Canada where HEXO, with the completion of its Newstrike acquisition, will have distribution agreements across nine provinces, including the industry-leading contract with Quebec. In total, management is guiding for $400.0 million in net revenue for 2020.

“HEXO operating facilities are strategically located allowing the Company to exploit a range of low- cost drivers. In Q2/19, HEXO reported impressive adj. gross margins at 52 per cent compared to an average of 43 per cent versus other mid-to-large-cap Canadian cannabis peers,” he says.

The analyst thinks HEXO will generate fiscal 2019 revenue and Adjusted EBITDA of $62.6 million and negative $34.1 million, respectively, and fiscal 2020 revenue and Adjusted EBITDA of $355.6 million and $69.8 million, respectively.

Kideckel’s valuation implies a forward multiple of 36.3x, 19.7x and 13.3x on his fiscal 2020, 2021 and 2022 Adjusted EBITDA estimates, while his $10.50 target implies a return of 19.9 per cent at the time of publication.