Following a third quarter he regards as “immaterial”, GMP Securities analyst Martin Landry says ICC International Cannabis Corp. (TSXV:ICC) is trading at a hefty discount to its peers.

Last Thursday, ICC filed its third quarter, 2017 results. The company posted EBITDA of negative $686,000 on revenue of $147,000. The company focused on its recently closed $23-million bought deal.

“With the closing of the offering, we have the capital in place to continue the construction of our CBD oil production laboratory,” CEO Alejandro Antalich said. “We are building a premier CBD oil production facility in a low-cost jurisdiction, with access to South America’s large markets. This will continue to be our competitive advantage as we scale up our production base and continue our international expansion plans,” commented Alejandro Antalich, chief executive officer of the company. “Our recreational cannabis business segment has shown robust results with 180 kilograms sold between July 19 and Sept. 30.”

Landry summarized the quarter.

“ICC announced Q3/17 results which are largely immaterial given they include only the first quarter of recreational product sales in Uruguay, and no CBD-extract sales,” the analyst said. “Revenues of $147k were below our $292k forecast due to lower volumes (estimated 180kg vs. 324kg forecast) as fewer pharmacies participated in the domestic market. Adj. EBITDA of –$686k was better than our –$833k forecast on lower SG&A expense.

In a research update to clients today, Landry maintained his “Speculative Buy” rating and one-year price target of $2.50 on ICC International Cannabis Corp., implying a return of 157.7 per cent at the time of publication.

Landry thinks ICC will generate EBITDA of negative $2.6-million on revenue of $300,000 in fiscal 2017. He expects those numbers will improve to EBITDA of positive $100,000 on a topline of $15.8-million the following year.

Landry says while other cannabis stocks have soared of late ICC has not followed suit, setting up what he sees as an opportunity for investors in the sector.

“ICC shares have underperformed the broader cannabis sector recently, remaining largely range-bound,” he explains. “With valuation relatively low at ~3.5x CY19 EV/EBITDA (~40% discount to junior LP peers), we believe this provides an attractive entry point for investors, while offering downside protection. We view ICC’s cost advantage and strategic location as key drivers to capitalize on the rapid global growth of CBD. Our target is based on a DCF using: 1) a discount rate of 18%, 2) two-stage average revenue growth of 28% and EBITDA margin of 40%, and (3) terminal growth of 0%.”