Golden Ticket To California Cannabis Retail? Gold Flora's Valuation & Potential, Overweight Initiation By Zuanic

Equity research firm Zuanic & Associates led by senior analyst Pablo Zuanic has initiated coverage of Gold Flora GRAM with an Overweight rating.

This coverage comes at a time when the California cannabis market is poised for consolidation, making it an opportune moment for well-positioned companies like Gold Flora to thrive.

California's Cannabis Market And Growth Potential

California is the largest cannabis market in the United States, with over $5 billion in retail sales. Despite a lower per capita spend compared to other states, the market shows significant growth potential.

High sales taxes, limited store density due to municipal restrictions and regulatory challenges have contributed to its lower per capita spend. However, despite these challenges, Zuanic noted California's market remains sophisticated, offering a wide range of brands and price points.

Gold Flora's Position

According to Zuanic, Gold Flora is uniquely positioned to capitalize on California's evolving cannabis landscape.

The analyst highlighted that following the merger between The Parent Company and Gold Flora, the company now boasts the 3rd largest retail chain in the state and ranks among the top nine in brands. With $32 million in cash on its balance sheet and negligible net debt, the company enjoys financial stability.

Retail Landscape And Expansion Potential

California's retail landscape features 1,241 active storefront licenses, translating to a store density of 32 stores per one million people.

While the per capita spend varies by location, the state's retail prices and retailer spreads are higher than in other western states, making it an attractive market for operators.

Gold Flora, primarily located in limited-license municipal jurisdictions, is well-positioned within this retail sector, providing opportunities for expansion and consolidation.

Company Strategy And Growth Outlook

Gold Flora's strategy involves strategic expansion, both organically and through mergers and acquisitions. The company aims to optimize margins through integration and purchasing power.

Zuanic’s report states the company currently operates 17 stores under various banners and plans to expand further, particularly in license-restricted areas and coastal/tourist regions. By mid-2024, the company will have significantly increased its indoor cultivation capacity, allowing for a wider range of products and improved margins.

Brand Portfolio

The company's brand portfolio is the 9th largest in California, with brands like Cruisers, Jetfuel, Aviation and Gold Flora making significant contributions to its sales.

The company aims to gain further market share, particularly in the flower category, which remains fragmented.

Financial Position And Valuation

Gold Flora boasts a strong financial position with $32 million in cash and plans to achieve positive free cash flow over the next two years.

Its valuation, based on projected 2025 estimates, reflects a compelling opportunity, with the stock valued at 0.6x sales and 3.4x EBITDA.

While price targets are not assigned, the potential upside for investors could be substantial as the company grows organically and through strategic acquisitions.

Bull And Bear Scenarios

In a bullish scenario, Zuanic foresees Gold Flora could capture a larger market share in California, leading to significant valuation growth.

Conversely, in a bearish scenario, market challenges and increasing competition could pose risks. However, the company's disciplined approach to its brand and retail portfolio, combined with its presence in limited-license jurisdictions, helps mitigate these risks.

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