Decibel Cannabis (OTC:DBCCF) is poised for significant growth, as outlined in a recent report by Zuanic & Associates, which highlights Decibel’s robust cash flow generation as a key strength.
With a projected free cash flow (FCF) of $20 million for 2025, the company boasts a significant FCF yield of 54%.
"With a leading franchise in Canadian pre-rolls (the category is as big as Flower in Canada rec now)…we believe Decibel should trade more in line with the larger market cap LP stocks (especially with debt leverage projected below 1.4x for next year)," senior analyst Pablo Zuanic wrote in the report.
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Market Trends, Decibel's Performance
The Canadian recreational cannabis market saw an improvement in October and November, with a year-over-year increase of 6.7%. However, Decibel continued to experience significant sales declines, dropping by 23% year-over-year.
While other major players like Tilray (NASDAQ:TLRY) and Canopy Growth (NASDAQ:CGC) also experienced sales declines, companies like Auxly (OTC:CBWTF) and Cannara (OTC:LOVFF) showed substantial growth.
In terms of market share, Tilray maintained the top position, followed by Organigram (NASDAQ:OGI) and Village Farms (NASDAQ:VFF). Decibel held a 4.7% market share in November.
- Pre-rolls: Decibel’s core-infused pre-roll segment, while still a significant contributor to revenue, has seen a decline in market share. "Over 97% of Decibel pre-roll sales come from the infused segment (3Q24), where Decibel has seen share erosion; after peaking at 57% in 2Q23, this was 35% in 3Q24 (1Q24 48%; 2Q24 41%)," reads Zuanic's report.
- Vapes: Decibel’s total vape share fell to 9.7% in 3Q24 from 11.8% in 3Q23, although the company has adapted well to the growing AIO segment. "Decibel has adapted well in AIOs now 29% of its vape sales and is #3 in the AIO segment with a 13% share," Zuanic noted.
Read Also: Decibel Acquires AgMedica, Announces Private Placement And Third Quarter Guidance
Strategic Acquisition
The acquisition of AgMedica is a strategic move that will significantly enhance Decibel’s market position and growth prospects. By expanding its product portfolio, distribution network, and market share, Decibel aims to capitalize on the growing Canadian cannabis market. Key benefits include:
- Expanded Product Range: AgMedica brings a diverse range of products, including flowers, pre-rolls, edibles, and concentrates.
- Enhanced Distribution Network: The acquisition will expand Decibel’s reach, allowing it to tap into new markets and customer segments.
- Strengthened Market Position: By combining the strengths of both companies, Decibel aims to solidify its position as a leading player in the Canadian cannabis market.
Zuanic's Thesis
For Zuanic, Decibel offers a compelling investment opportunity due to its financial position and growth prospects. With a projected FCF of $20 million for 2025, the stock offers a significant FCF yield of 54%.
Additionally, its low valuation multiples of 0.5x sales and 2.8x EBITDA make it an attractive investment. "Although we do not set price targets, at 1-2x our CY26 sales estimates, the stock could be 6-10x higher by Dec'25 vs. current levels," Zuanic concluded.
Read Next: Canada’s Cannabis Market Goes Cold, Pot Prices Hit Bottom: Why Top Producers Are Losing Ground
