SANTA MONICA, CA / ACCESSWIRE / April 26, 2018 / As the legal cannabis movement continues to gather tailwinds, bolstered by California legalizing recreational marijuana at the start of 2018, laboratory testing has become an integral part of the overall regulatory framework to ensure product consistency and safety for the public. This is part of the reason that Singular Research has now initiated coverage on EVIO, Inc. (OTCQB: EVIO) with "buy" rating and a $2.00 price target, representing a 48.2% upside from the closing price of the stock on April 19, 2017. EVIO is a leading provider of cannabis testing and scientific research for the regulated cannabis industry.
Shares of EVIO gained on Wednesday with the announcement of the coverage, closing the day at $1.58.
The research report by Singular is available on the OTC Markets Group website at: https://backend.otcmarkets.com/otcapi/company/research/191576/content.
Cannabis market research group New Frontier Data predicts that cannabis sales in the U.S. will reach ~$24 billion by 2025 after totaling ~$7.2 billion in 2016. As a subset, cannabis testing is one of the fastest growing market segments. According to GreenWave Advisors, cannabis testing has the potential to reach $850 million in size by 2020. Based on equating to about 5% of the cannabis market, it should reach $1.2 billion based on New Frontier Data's forecast.
"EVIO is expected to benefit from favorable sector tailwinds as the cannabis industry is set to double in size by 2021," wrote CFA Jim Marrone in the Singular research report. The report focuses on a number of growth catalysts for EVIO in the burgeoning legal cannabis space. EVIO currently has nine laboratories in its portfolio and is on track to have 18 state-of-the-art testing facilities by year-end 2018. The company has focused its growth on key cannabis states, including California, Massachusetts, Florida, Oregon and Colorado.
Singular sees California, the U.S.'s most populous state with 40 million people and the single biggest cannabis market in the world, as particularly important for EVIO. Analysts expect the cannabis testing market in the state will surge to reach $250 million by 2019. Sales of cannabis in California are estimated to hit $3.7 billion this year and potentially reach $5.1 billion next year. Previously, it was a bit Wild West-like in California with minimal oversight and regulations to the legal medical marijuana space. However, in July, it becomes mandatory that all consumer cannabis products are lab tested.
Against this backdrop, the report reads: "With mandatory testing of cannabis products gaining traction, we expect EVIO to be a significant beneficiary given its wide experience (~50,000 tests conducted so far) and accredited laboratories."
The analyst also takes note of EVIO's ability to capture significant market share through strategic placement of its labs. In the state of Oregon, home of its corporate headquarters, EVIO has four labs, all of which are near hemp growers, allowing EVIO to service nearly 25% of the cannabis testing market in Oregon.
Last week, the company entered the international market by making an acquisition of 50 percent of Keystone Laboratories, a Heath Canada-accredited testing facility with a Good Manufacturing Practice (GMP) establishment license based in Edmonton. Canadian markets are projected to surge later this year when the country becomes only the second in the world to legalize recreational marijuana.
The quality of EVIO labs also resonates with Singular, who noted that the company's lab in Florida recently attained ISO 17025 accreditation, making it the first accredited cannabis testing lab in the state. All of EVIO's labs are either accredited or going through the accreditation process currently.
Financially, the report shows the robust revenue growth EVIO has experienced to the tune of 348% and 438% in 2016 and 2017, respectively. After posting $3.0 million in revenue during 2017, Singular estimates revenue will reach $10.0 million during 2019 and for net loss to be shaved from $0.37 per share last year to only $0.04 per share in 2019 and for EVIO to be solidly in the black in 2020 with a net profit of $0.21 per share.
At the same time, gross margin has been dramatically improving as well, including reaching ~22% in Q1 2018 versus 12% in the year prior quarter. EVIO has invested aggressively to expand its testing service offerings, equipment upgrades and new testing capabilities, all of which the company expects will improve margins further. To that point, Singular sees gross margin growing from 18.7% in 2017 to around 50% in 2020.
All figures and estimates aside, Singular makes an astute observation that should resonate with the investment community looking at the cannabis space with respect to savvy investing. The report reads: "With cannabis remaining federally illegal, cannabis testing represents a lower risk subset of the industry that is driven by a growing number of state-wide regulations and demand for safe product for consumers."
In other words, intense consumer demand is forcing governments to act quickly to implement safety regulations (read as "lab testing"), which plays perfectly into the hands of EVIO.
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SOURCE: EVIO, Inc.