Oct. 16, 2019, 10:45 a.m. EDT

Canadian cannabis company Flowr should benefit from its focus on Europe: MKM

MKM Partners analyst Bill Kirk initiated coverage of Canadian cannabis company The Flowr Corp. (OTC:FLWPF) (TSX:CA:FLWR) on Wednesday with a buy rating and said the company stands out from the crowd in Canada thanks to its focus on Europe. "We believe growing at an EU GMP certified facility in Portugal (expected before year-end) will put Flowr at an advantage to those trying to export from Canada to Europe, and even the growers in South America," Kirk wrote in a note to clients. Portugal offers a better climate for cannabis growing than Canada, and has a cheaper labor force and lower transportation costs, he wrote. The analyst estimates that Toronto-based Flowr can save 50% of costs by operating in Portugal and possibly even achieve parity with growers in Columbia. "This should give Flowr a distinct advantage to capture share in the EU, which presents an opportunity more than 10x the size of Canada. Within Canada, Flowr is focused on high-end product, which offers a non-commoditized niche opportunity," said Kirk. He assigned the stock a C$4.00 price target that about double its current trading level. Germany, France, Spain, the U.Kl and italy are likely bigger markets than Canada, and the overall European market will likely be at least 10 times the size of the current Canadian market. However, regulatory and legal barriers remain as Europe has been slow to develop a framework for cannabis. Flowr's U.S.-listed shares were up about 1% but have fallen 48% in 2019, while the ETFMG Alternative Harvest ETF (PSE:MJ) has fallen 22% and the S&P 500 (S&P:SPX) has gained 16%.

Link to MarketWatch's Slice.