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Cenkos Research Note: Sativa Group PLC

UK downstream early mover

Sativa Group plc (NEX:SATI) is an early mover into legal medicinal cannabis markets in the UK with multiple high growth downstream business including a cannabinoid testing lab, CBD wellness products, brand and retail stores, as well as a cannabinoid veterinary medicine business. With a strong management team and advisory board the company has positively refined its strategy and successfully promoted its business and consumer brands in an increasingly noisy marketplace. We believe Sativa as well positioned to capitalise on the growth expected in cannabinoid based therapies in the UK and provides investors an attractive entry point into this growth industry. We initiate with a Buy recommendation and 9p fair value.

UK CBD early mover – Sativa’s George Botanicals brand has been selling high quality CBD (Cannabidiol) based products which are fully tested and correctly labelled for over 18 months. This business is currently growing at over 150% pa and the opening of a first retail store in Bath, branded Goodbody Wellness, will further boost its growth. We believe just a c2.5% market share in the UK for this business would provide attractive returns to investors, with the company targeting 10%.

Sativa’s PhytoVista is a fast-growing specialist UK based cannabinoid product testing lab – which positions the company at the forefront of the industry in interactions with regulators. ISO 17025 certification is in process and expected in H2/19 and should lead to an inflection in growth.

Attractive veterinary product business – Sativa has applied for a UK cannabis R&D growing license, has an R&D relationship with Kings College London and an impressive Advisory board. As the UK environment for prescribing cannabis based medicines currently is restrictive, and not believed to be sufficiently financially attractive, Sativa is initially pursuing the veterinary market which has a shorter product development and authorisation lifecycle, whilst products developed may have applicability in humans.

Conservative financial forecasts – Despite high expected growth forecast for cannabinoid based products we have taken a conservative view on expectations as Sativa’s businesses are early stage and have limited visibility. Visibility will improve as the company achieves key milestones such as regular sales from its first retail store and any distribution deal to put its CBD products in high street chains.

Valuation – We believe the current valuation is an attractive entry point into the high growth medicinal cannabis sector and initiate with an 9p fair value. Should Sativa deliver on the expectations outlined in this report, including substantially developing several new cannabis business lines that are not currently reflected in its financials, then we believe its valuation could rise towards 15p in 12-months.

Medicinal Cannabis Sector Overview – As well as an initiation on Sativa Group, this report includes a detailed Medicinal Cannabis sector overview


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Disclaimer: Statements in this article should not be considered investment advice, which is best sought directly from a qualified professional.