Roth MKM analyst Nick Anderson, in a research report published on June 18, 2024, provided an update on Verano Holdings Corp. (VRNO:CSE; VRNOF:OTCQX) following the company's announcement of a share repurchase authorization of up to US$50 million. The analyst maintains a Buy rating on the stock and a 12-month price target of US$10.00.
"Verano announced a share repurchase authorization to buy back up to US$50M in shares as the company looks to support its stock and create shareholder value," Anderson noted. "As a leading MSO generating strong margins and cash flow (US$73M FCF in '23), the buyback program provides another outlet to return capital to shareholders while remaining opportunistic around future growth investment opportunities."
The analyst views the new repurchase optionality positively, especially as Verano shares trade at a lower multiple compared to its large-cap peers. "VRNO shares trade at 4.8x '25 EV/EBITDA compared to 6.5x for large-cap peers," Anderson stated.
Anderson highlighted Verano's focus on generating meaningful cash flow to invest in growth capital expenditure, mergers and acquisitions, paying down debt, and opportunistically buying back shares. "With its lean operations and ability to execute top-tier margins in a broad footprint, the company is well-positioned to generate increasing cash flow from scaled assets ahead of significant state catalysts in FL, OH, and PA, and the elimination of 280E generating an additional ~ US$80M in cash flow," the analyst commented.
Verano's Board of Directors has authorized the repurchase of up to US$50 million of the company's Class A shares through the Normal Course Issuer Bid (NCIB) rules of the Cboe Canada. "VRNO may purchase up to an aggregate of 17,230,857 shares (5% of outstanding shares) up to a US$50M limit," Anderson noted. "On any day, the company may not purchase more than 25% of the average trading volume, but purchases of shares are at the discretion of the company over the next 12 months with no obligation to repurchase shares."
The analyst believes that Verano is one of the few multi-state operators (MSOs) in a position to return capital to shareholders, and the buyback program allows management to opportunistically time purchases when they perceive shares as undervalued compared to the company's fundamentals.
Anderson expects Verano's stock to re-rate with the finalization of cannabis rescheduling in 2024 and the conversion of large states such as Florida, Ohio, and Pennsylvania to adult use. "VRNO remains one of our top picks within our coverage," the analyst stated. "We believe the recent cannabis industry sell-off tied to rescheduling timing uncertainty (not pricing in SIII happening in '24) is unwarranted, as we expect the process to be finalized by the elections."
Roth MKM's valuation of Verano is based on a multiple of the company's projected enterprise value to EBITDA. With a Buy rating and a price target of US$10.00, representing a significant upside potential from the price at the time of the report of US$3.40, the analyst sees Verano Holdings Corp. as an attractive investment opportunity in the cannabis sector.
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Disclosures for Roth MKM, Verano Holdings Corp., June 18, 2024
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures: Shares of Verano Holdings Corp may not be eligible for sale in one or more states. Shares of Verano Holdings Corp may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2024. Member: FINRA/SIPC.
