With the opening this week of its fourth cannabis dispensary in Arizona and a potential doubling of its production capacity in the state, medical cannabis company MPX Bioceutical Corp’s (MPX Stock Quote, Chart: CSE:MPX) expansion plans are coming along nicely, says Russell Stanley, analyst with Echelon Wealth Partners. On Monday, the analyst reiterated his “Speculative Buy” rating for MPX and his 12-month target price of $1.40 per share.

Toronto-based MPX Bioceutical announced on Monday the opening of a new dispensary (The Crimson) in southeast Metropolitan Phoenix, an area that management believes to be presently underserviced. As well, the company’s new production facility, which currently has an annualized production capacity of 150 kg of high-margin cannabis concentrates, with plans to expand to 800 kg by the end of CQ4 of 2018.

Stanley likes what he calls the attractive pricing environment for MPX-brand products, resulting in a positive view of the company’s current expansion plan.

“At current wholesale pricing, the annualized revenue potential of 800kg in capacity is US$18 million, or approximately US$22.50/gram (or almost $29/gram), highlighting the premium price points these products command,” says the analyst in a client update. “By comparison, major Canadian licensed producers currently realize a weighted average price of $7.35/gram on dried cannabis and $12.13/gram on extracts/oils (for a blended average of $8.38/gram).”

“MPX recently issued preliminary monthly sales of $5.2M from its Arizona operations in March. To provide context, our forecast of MPX’s sales for the entire FQ418 quarter (ended March 31) –which also includes a contribution from Nevada operations– is $6.9M. Compared to our forecasts, MPX’s announcement indicates strong revenue for the recently finished quarter,” he says.

MPX Stock cheap compared to peers

Stanley points out that last week, the MPX stock returned almost six per cent versus the Horizons Marijuana Life Sciences Index ETF’s (HMMJ-TSX) which was down ten per cent and the adjusted average tracking group loss of 9 per cent.

“MPX continues to trade at 7.8x EV/F2020E EBITDA (with a March 31 FYE, F2020 roughly equals C2019) based on our estimates, a 35 per cent discount to its US-based peers at 12.0x EV/C2019E EBITDA, and a 43 per cent discount to the broad peer group adjusted average of 13.7x EV/C2019E EBITDA,” he says.

Stanley thinks MPX will produce revenue and Adj. EBITDA in 2018 of $20.2 million and negative $2.9 million, respectively, followed by revenue and Adj. EBITDA in 2019 of $96.9 million and $21.2 million, respectively.

The analyst’s $1.40 price target represents a potential return on investment of 89 per cent at the time of publication.