Beacon Securities analyst Doug Cooper says “significant” supply issues facing the Canadian market underscore the value in Village Farms International (Village Farms International Stock Quote, Chart TSX:VFF).

Cooper points to recent industry data from Statistics Canada that reveal a supply shortage in cannabis production. The analyst points the finger squarely at LPs who he says have had “years” to prepare for this event and says VFF is best positioned to benefit from this development.

“In our view, experience matters,” Cooper says. “No large Canadian LP has industrial agriculture experience and it is clearly more difficult to grow at scale than has been expected. In fact, VFF is the ONLY company operating in the Canadian cannabis market with such experience having operated industrial greenhouses for the past 30 years with a profitable history of planting, harvesting, packaging and selling to the retail channel. We believe that with such experience, coupled with its potential capacity, VFF (through its Pure Sun Farms JV) could ultimately result in a 30-50% market share (~350,000 kg) in Canada.”

In a research update to clients Monday, Cooper maintained his “Buy” rating but raised his one-year price target from $13.50 to $16.00, implying a return of 97 per cent at the time of publication.

The analyst thinks Village Farms will generate Adjusted EBITDA of $3.3-million on revenue of $195.0-million in fiscal 2018. He expects those numbers will improve to EBITDA of $28.9-million on a topline of $245.0-million the following year.

“We believe VFF represents the best risk-return in the Canadian cannabis market. We believe it remains an “unknown” player despite its potential to be on the largest players in Canada. (Note as a point of reference, it does not even make it to many peer group valuation tables – likely because it is such an outlier to the downside in terms of valuation). In a market where Canadian LPs are searching to backfill production (ie. Tilray recent purchase of Natura Naturals in Leamington, Ontario), we find it likely that VFF is on the radar screen of many Canadian LPs who trade at valuations that are multiples that of VFF – and they could get the Texas assets for free.”