Matt Bottomley maintained a Speculative Buy rating on Sunniva with a price target lowered from CA$13 ($9.77) to CA$10 ($7.51).
While Canaccord is encouraged by Sunniva's launch into the California market, delays to the company's Cathedral City greenhouse plans are a concern, Bottomley said in a Sunday note.
The build-out is "the most material driver to our valuation," the analyst said.
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The greenhouse was slated for completion during the first quarter, Bottomley said. The company instead opted for a modular build of the originally planned 100,000 kg greenhouse," he said.
"As a result, we have increased the ramp of our California estimates by three to six months while reducing our estimated Canadian market share to 1 percent (down from 2 percent)."
The combination of a lower Canadian market share and a longer ramp in California led to a decrease in financial expectations, Bottomley said.
Canaccord now projects 2020 revenue of CA$154 million, down from CA$248 million, with 2020 EBITDA of CA$43 million, down from CA$67 million.
The California ramp in particular is the key reason why the company will report a modest first-quarter gross profit, the analyst said. Gross profit of 30-35% is expected, he said.
Sunniva plans to secure supply contracts with leading brands in California to become a leading cGMP-compliant operator, Bottomley said.
An update on Sunniva's Cathedral City phase one build-out is expected as part of its fourth-quarter print April 29, according to Canaccord.
Sunniva shares were down more than 3 percent at $3.86 at the time of publication Monday.
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Photo courtesy of Sunniva.
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