VIVO Cannabis Inc (OTCMKTS: VVCIF) opened the year 2019 higher than it had closed 2018. However, the stock is yet to climb to safe levels. Nonetheless, like in our previous update on VVCIF, we still believe the stock is a potential bounce-back play.
VVCIF Share Price Analysis
VIVO Cannabis stock had a rollercoaster experience for much of 2018. However, there was an apparent trend which indicated a stock which was slowly being taken over by the bears. As a matter of fact, the stock closed 2018 at an all-time low price of $0.47after having begun trading at $0.65 on May 7, 2017.
Since January 2019, the stock traded along an upward trajectory where it attained this year’s high at $0.89 on February 1, 2019. However, it has been a slide since then but signs of the bulls trooping back were apparent beginning from May 21. Notably, the stock has remained undecided on which direction to take since May 9 where it has continuously fluctuated around $0.51.
The last time such a fluctuation happened was between July 16 and July 26, 2018. In the period, the stock danced between $0.90 and $0.81 but later took off with a 76.5% rally until it touched $1.43 on September 4, 2018. Therefore, one cannot help but acknowledge the huge potential for a rally in the near term.
There is a significant upside to VVCIF based on a few fundamentals. First, the company has successfully maintained its active patient list which numbers on the upwards of 18,000. These patients belong to Beacon Medical and Canna Farms, where both are good-performing subsidiaries. Secondly, the company has clearance from Health Canada to expand cultivation facilities at three locations in Canada. In particular, this momentum in domestic expansion has seen VIVO Cannabis expand its reach internationally.
Given the fundamentals, PI Financial Analyst, Jason Zandberg, puts the target price for VVCIF at $1.80. Based on the current price, the stock has an upside of 260% in terms of return on investments in a 12-month period.
About VIVO Cannabis
With a collection of premium brands under its name, VIVO Cannabis cultivates, processes and distributes medical cannabis. The company operates various cannabis cultivation facilities which leverage a proprietary plant-growing technology. At the moment, part of the business strategy is to actively expand into international markets through expansion of distribution channels. Also, the company is keenly focused on various cultivation capacity expansion strategies through partnerships. The company is based out of Napanee, Canada.
Financial results for Q1 2019
The first quarter 2019 earnings results came in with some positives compared to Q4 2018. Specifically, the company reduced the negative value of the adjusted EBITDA from ($7.3 million) to ($2.2 million). However, the company reported lower net revenue of $51 million compared to $58 million in Q4. Nonetheless, this is nothing to worry investors since the company dedicated a lot of capital in the first quarter 2019 to bolstering of the production capacity.
The advantage of increasing the production capacity is to lower the cost of producing a single kilogram of premium cannabis dry flower. Considering that the price of the product increased to $7.70 in Q1 2019 from $7.51 in Q4 2018, the potential earnings from the expanded production capacity is massive.
In this regard, Barry Fishman, CEO and President of VIVO Cannabis said, “The first half of 2019 has been focused on increasing VIVO’s production capacity… Our goal has always been to increase long-term shareholder value by establishing ourselves as a premium provider of cannabis products and services. We are lowering our cost per kilogram through increased production capacity, thereby realizing economies of scale.”
Expansion of production capability and capacity
At the core of the VIVO business model is the desire to lead the Canadian cannabis industry. As such, the company has dedicated much of the past year to expand production capability as well as the production capacity.
In the earnings report for Q1 2019, the company revealed that the expansion of the facilities at Canna Farms and Vanluven doubled overall production capacity. Further, the facility at Kimmett will soon be complete and that will add more production capacity and capability.
Essentially, the company is building a growth momentum necessary for the share price to bounce from the bears.
VIVO Cannabis has been depressed for a long time for understandable reasons. In any period of expansion, a company spends more than it earns and that dents the financials. However, the recent developments at VIVO indicate a company which is on the edge of a major breakout.
In particular, the company has managed to come out of a massive expenditure period with its balance sheet healthy. Basically, the company has built a strong foundation which should launch the stock price in the region of the price targeted by Zandberg.
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Disclosure: We have no position in VVCIF and have not been compensated for this article.