It stumbled out of the gate, by Clarus Securities analyst Noel Atkinson thinks there is plenty of upside in newly-listed Licensed Producer MedReleaf (TSX:LEAF).

On June 7, Medreleaf Corp. completed its IPO, raising $100.7-million by selling 10.6-million shares at $9.50. On its first day of trading, shares of the cannabis stock slipped 22 per cent to close at $7.40. The stock, however, bounced back to close at $9.49 on June 12.

In a research report to clients today, Atkinson initiated coverage of MedReleaf with a “Buy” rating and one-year price target of $14.00. The analyst says he regards the company as the country’s indoor powerhouse, believing it will ultimately be one of the victors in the nascent space.

“We believe MedReleaf Corporation (“MedReleaf”) will be one of the major winners in the Canadian cannabis licensed producer (LP) sector as the industry evolves over the next 12-18 months from today’s vertically-integrated direct-to-patient business model to a much larger wholesale opportunity selling legal recreational cannabis to distributors/retailers and medical cannabis to pharmacies,” says the analyst.

“MedReleaf garners premium prices for its award-winning strains. It also achieves what we believe are the highest cannabis crop yields of any LP (300+ grams per sq. ft. per year), and has reported the lowest per-gram cash production costs of any indoor producer to date ($1.55/g in Q3/FY17 ended Dec/16). Supply shortages and contaminant recall notices across the industry highlight how difficult cannabis is to grow consistently in large commercial quantities to Health Canada standards, and MedReleaf is one of the few LPs that have successfully scaled to high capacity utilization. The Company also holds the industry records for largest quarterly revenue ($10MM+), Adj. EBITDA (nearly $4MM) and Adj. EBITDA margin (39% in Q3/FY17). Meanwhile, MedReleaf has received Health Canada approval to commence cultivation at its new facility in Bradford, ON, which should expand capacity 5x over the next 12 months to about 35,000 kg/year.

Atkinson thinks MedReleaf will post Adjusted EBITDA of $7.0-million on revenue of $39.9-million in fiscal 2017. He expects those numbers will improve to EBITDA of $35.9-million on a topline of $103.9-million the following year.

The Clarus Securities analyst says investors should expect a raft of developments from the Licensed Producer.

“MedReleaf operates at scale (high utilization of its 7,000 kg/year facility in Markham, ON), consistently has a broad selection of strains, and is constantly innovating to improve yields, product quality and formulations,” he says. “As one of the industry’s few “advanced producers” we believe MedReleaf has a sizable competitive advantage to win wholesale contracts with pharmacies and recreational cannabis distributors/retailers in the near term.”