Higher Demand for Cannabis Product to Support Business Prospect: Aleafia Health Inc. (TSX: ALEF) is a Canada-based, federally licensed cannabis company, which offers cannabis health and wellness services and products in Canada and international markets. The company also has education centres, medical clinics, and production facilities for the production and sale of cannabis and other related products. The company will disclose its Q1FY20 results on May 13, 2020.

The company reported commencement of Virtual Clinic Services, as there has been a voluntary shut down of all its physical clinics due to COVID-19 pandemic. The company further confirmed the consultation of ~3,300 patients. All the production facilities of the company are operating normally, and ALEF reported no production cut as of now. Recently, the company has started its operation in the Niagara Facility and preparing for further expansion in Paris Facility’s Phase II. Last but not the least, the company will start its contactless- home delivery facilities to the Toronto-based registered Emblem patients.

Q4FY19 Financial Highlights: For the period ended December 31, 2020, ALEF posted an impressive set of numbers wherein quarterly revenue grew to CAD 6.03 million, up 22% on q-o-q basis, aided by the higher income from cannabis products. Gross profit before fair value adjustments on cannabis net revenue stood at CAD 3.86 million, reflecting an increase of ~135% from the previous quarter. Adjusted EBITDA stood at CAD 0.207 million, as compared to a loss of CAD 2.53 million. The company reported a net loss of CAD 9.8 million, as compared to a profit of CAD 1.9 million in the previous period. The shrinkage in the bottom-line was primarily attributable to a decline of CAD 8 million in unrealized gain on fair value of biological assets compared to Q3 2019, and a higher tax expense in the quarter. The company exited the quarter with a cash balance of CAD 41.25 million as on December31, 2019.

Q4FY19 Financial Highlights (Source: Company Reports)

Stock Recommendation: The stock corrected ~48% in the last three months. However, it recovered 7.14% during the last five trading session, outperforming the index by 4.82%. The stock is trading above its 20-Days Simple Moving Average (SMA) of CAD 0.368 with a market capitalization of CAD 103.05 million. The company’s investments in virtual clinic are paying-off as the company managed to quickly transition to physician-led virtual consultation of patients.  Further, last month, it launched last-mile home delivery of medical cannabis. The company is providing contactless, next-day home delivery to the patients. Also, Aleafia remains well positioned to benefit from the expansion in the adult-use markets and all three of its production facilities operating at normal level. Hence, considering the aforesaid facts, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of CAD 0.375 as on April 20, 2020.

ALEF Daily Price Chart (Source: Thomson Reuters)

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