Jan 31, 2022 Ayurcann Research Note.pdf - Brian

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Analysts' Ideas of the Week Cannabis Stocks On the Move January 31, 2022 www.researchfrc.com Page 2 FRC Top Picks The following table shows last week’s top five performers among our Top Picks, including two cannabis, two junior resource, and one fertilizer company. The top performer, Kiaro Holdings (TSXV: KO), was up 15.4%. Cannabis stocks outperformed the market amid positive sector developments last week (see page 17). As the sector has been out of favor since early 2021, we believe the market is overlooking fundamentally solid companies. Our prior reports can be viewed here. Top Five Performers Last Week Source: FRC Companies in our Top Picks list were up 1.5% on average last week vs 2.5% for the benchmark (TSXV). Our picks have outperformed the benchmark in four out of the seven time periods presented below. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 3 Performance by Sector Source: FRC Our complete list of top picks (updated weekly) can be viewed here. Weekly Mining Commentary Global equity markets rebounded last week (up 1.6%; down 5.1% in the prior week), despite strong hints of rate hikes in March from the U.S. and Canadian central banks. Although labor markets are improving, we believe central banks are unlikely to pursue aggressive rate hikes, as the global economic recovery is expected to be slower than expected. The IMF recently lowered its GDP growth forecasts (as shown in the chart below). In addition, supply-chain disruptions are likely to ease in H2-2022, as governments worldwide are relaxing restrictions. Source: FRC / Various ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 4 Last week, six countries (previously eight) among the 15 nations with the most cases experienced higher daily new cases. Seven countries (previously nine) experienced WoW increases in deaths. Globally, 61.03% have received at least one dose, up 0.5 ppt WoW vs 0.6 ppt the same time last week. 79.07% of Canadians have had two doses (0.9 ppt vs 0.3 ppt) vs 70.94% in the U.K. (0.3 ppt vs 0.4 ppt), and 63.53% in the U.S. (0.4 ppt vs 0.7 ppt). 40% of Canadians (previously 36%), and 26.4% of Americans (previously 25.2%) have received booster (third) doses. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 5 Source: Our World in Data / FRC Metal prices retreated last week amid a stronger US$. Inventory levels of copper and zinc increased significantly in China, indicating weakness in the country’s economy. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 6 Source: FRC / Various ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 7 Valuations of gold producers were down 3% (previously flat) last week; base metal producers were down 1% (previously down 4%). ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 8 ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 9 We are maintaining our price forecasts. Updates from Resource Companies Under Coverage Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: World Copper TSXV: WCU $0.90 $2.02 Ltd. PR Title FRC Opinion Announces closing of Cardero plan of Positive – We were expecting this arrangement acquisition to close; our fair value estimate already accounts for the acquisition. Cardero’s Zonia copper-oxide porphyry project in Arizona has an attractive AT- NPV8% of US$447M, at US$4/lb Cu (2018 PEA). We estimate that WCU’s shares are trading at just 17% of the AT-NPV8% of Zonia, and receiving no value for its other asset (Escalones). Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Vista Gold Corp. NYSE: VGZ US$0.68 US$2.07 PR Title FRC Opinion Receives $2.5 million Awak Mas option Positive – Strengthens balance sheet; Vista payment is actively seeking a development partner for its flagship Mt. Todd project. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 10 Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Lion Copper and TSXV: LEO $0.095 $0.42 Gold News Title FRC Opinion Definitive agreement on option to acquire Positive – We believe this deal diversifies two B.C. properties the company’s portfolio. The agreement relates to two properties in B.C. – one located east of the Golden Triangle, and one near Lytton. Option payments are mostly in shares. As they are in early stages, it is too early to comment on the potential of both projects. Results of a recent field exploration program will provide us additional insights. Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Cornerstone TSXV: CGP $3.86 $7.34 Capital Resources Inc. News Title FRC Opinion Newcrest (ASX: NCM) withdraws from Negative - Permitting delays led to option and farm-in agreement for the Newcrest’s withdrawal. Although Caña Brava / Tioloma gold-copper project disappointing, this development does not in Ecuador impact our fair value estimate as we have not accounted for any value on the company's non-core/early stage projects. On a positive note, Newcrest has spent US$2.9M on the properties. We believe this work will be useful for finding a new partner. Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Goldplay Mining TSXV: AUC $0.13 $0.38 Inc. PR Title FRC Opinion Completes technical reports on Big Frank Positive – The technical reports highlighted and Goldstorm South projects in BC the potential for discovering porphyry, and orogenic or gold-rich polymetallic deposits at both projects. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 11 Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Southern Silver TSXV: SSV $0.28 $0.75 Exploration Corp. PR Title FRC Opinion Identifies a new discovery on the El Sol Positive – Highly encouraging results; the claim with 3.5 metres averaging 549 g/t new high-grade discovery (including 0.8 m Ag, 0.3 g/t Au, 8.6% Pb and 3.6% Zn of 2,622 g/t AgEq) enhances resource (982 g/t AgEq) expansion potential. Drilling is underway for three additional holes. The company will also start drilling at its Oro porphyry copper- gold project next month. Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: GR Silver Mining TSXV: GRSL $0.30 $0.67 Ltd. PR Title FRC Opinion Underground drill results deliver wide and Positive – Continues to return high grade high-grade intervals, 38 m at 299 g/t Ag, values over thick intervals, which is positive including 1,091 g/t Ag over 2.1 m and for the upcoming resource expansion 1,002 g/t over 3.5 m program. Awaiting results of the remaining four holes. Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Avrupa Minerals TSXV: AVU $0.08 $0.20 Ltd PR Title FRC Opinion Drill results for 113.8-meter mineralized Positive – Multiple long-intercepts of sulfide intercept in SES21-044 at attractive copper and gold grades; currently Sesmarias North, Alvalade project, drilling 100 m NW along strike. AVU has Portugal confirmed mineralization along 350 m of a total strike of 1.7 km. We are awaiting updates on the recently announced properties in Finland. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 12 Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Golden Minerals NYSE: AUMN US$0.38 US$1.00 Corp. PR Title FRC Opinion Drills 1.5 m grading 4.02 g/t Au and Positive – Multiple intercepts with high- 1,473.2 g/t Ag at Yoquivo grade silver; awaiting results from six more holes. Our fair value estimate does not account for any value on this project as it is in pre-resource stage. Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Hannan Metals TSXV: HAN $0.30 $0.57 Ltd. PR Title FRC Opinion Extends mineralization by 3 km strike at Positive – These are very high copper San Martin, Peru; Channel samples 0.4 m grades for a copper-silver project. Although @ 10.8% copper and 124 g/t silver most of the project area remains largely untested, there are similarities with Poland’s large and high-grade Kupferschiefer copper silver mine. Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Silverton Metals TSXV: SVTN $0.21 $1.29 Corp. PR Title FRC Opinion Pluton silver-zinc project geophysical Positive – Identified significant anomalies, modelling completed and commencement reinforcing the previously identified six of seismic survey, Durango targets. We believe the seismic survey will provide key insights on the project’s potential. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 13 Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Grid Metals TSXV: GRDM $0.11 $0.54 Corp. PR Title FRC Opinion Reports wide zones of nickel Positive – Long intercepts of nickel; mineralization and higher grade core at management plans to conduct met studies the Bannockburn nickel property and additional drilling. Our fair value estimate does not account for any value on this project as it is in pre-resource stage. Financials, Technology, Energy, and Special Situations Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: KWESST Micro TSXV: KWE $0.66 $3.66 Systems Inc. OTCQB: KWEMF PR Title FRC Opinion New Para Ops less lethal weapons Positive – Pleased to hear that U.S. and introduced at SHOT Show 2022 international distributors have expressed strong interest in KWE’s products. KWE has to obtain a non-lethal weapon classification from the Bureau of Alcohol, Tobacco, Firearms and Explosives (expected in the coming weeks) prior to accepting orders. The following company recently published results. We will release an updated report shortly. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 14 Weekly Crypto Commentary The global MCAP of cryptos increased 11% last week to US$1.7T (previously down 21%). Source: Coinmarketcap Prices of mainstream/popular cryptos increased 1% on average last week, due to an increase in the S&P 500, and lower gold prices, partially offset by lower crypto trading volumes. We note that Bitcoin prices have been positively correlated to the S&P 500 and crypto trading volumes, and negatively correlated to gold. As we are expecting near-term weakness in equity markets, and stronger gold prices, we are expecting crypto prices to be under pressure this week. Source: FRC / Yahoo Finance ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 15 Companies operating in the crypto space are trading at an average EV/R of 8.9x (previously 8.3x). EV/R of Crypto Companies Source: S&P Capital IQ/FRC Source: S&P Capital IQ/FRC Key sector developments listed below (positive): ➢ Crypto exchange FTX raised US$400M to develop new products and obtain regulatory licenses. We believe such large investments in the sector, despite the ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 16 recent downturn in crypto prices, are positive for market sentiment. ➢ ETF and mutual fund manager VanEck launched its first crypto fund. The fund will hold Bitcoin, Ethereum, Polkadot, Solana, Tron, Avalanche, and Polygon. ➢ The White House is expected to release a report on cryptos this week; the report will likely provide insights on the government’s view on cryptos. ➢ On January 14, 2022, the Fed released a report outlining the potential pros and cons of a Central Bank Digital Coin (CBDC). After reviewing the report, we feel that the U.S. is moving slower than expected on this initiative. We believe the Fed is likely to move ahead with a CBDC as it will allow faster, more transparent transactions, and reduce consumers’ reliance on private cryptos. As China is advancing quickly on their CBDC, we believe the U.S. will have to move quickly to ensure that the US$ maintains its status as the global currency. Weekly Cannabis Commentary Cannabis Industry Performance Source: FRC ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 17 Last week, U.S. cannabis stocks outperformed their Canadian peers (11% vs 9%). Key sector developments below (positive): ➢ California lawmakers introduced a new bill to increase penalties for unlicensed cannabis growers. ➢ The SAFE Banking Act, a bill to increase access to banking services for cannabis companies, has been included in a spending bill. The bill requires senate approval, but if approved, we believe it would provide additional support for future federal legalization. Valuation The Canadian big four LPs are trading at a 6% premium (previously 0.4%) over their U.S. peers. Source: S&P Capital IQ, FRC ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 18 Average EV/R Source: S&P Capital IQ, FRC Canadian Retail Cannabis Pricing The average retail price per gram increased from $10.93 to $10.94. Canadian Retail Dried Cannabis Flower Pricing Source: Online Provincial Cannabis Stores, FRC ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 19 Canadian Retail Cannabis Stores As of January 31, 2022, there are 3,017 retail cannabis stores in Canada, a WoW increase of 22 stores, including 10 in Ontario, four in Manitoba, three in B.C., three in Newfoundland, one in Alberta, and one in Quebec. Nationwide Store Count Source: Provincial Websites, FRC ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 20 Updates from Cannabis Companies Under Coverage Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: Ayurcann CSE: AYUR $0.16 $0.55 Holdings Corp. PR Title FRC Opinion Rolls into fifth province with bestselling Positive – Pleased to see AYUR’s in-house Fuego vapes in Alberta product (Fuego vapes) generate strong demand from provincial distributors. We are expecting stronger revenue in Q2 (quarter ended December 2021) as the company has been ramping up its operations. Company Ticker Current Share FRC Fair Value Name: Symbol Price: Estimate: THC BioMed CSE: THC $0.08 $0.20 Intl. Ltd. PR Title FRC Opinion Granted license to cultivate cannabis for Positive – Management’s initiative to medical and scientific use research the potential of CBD to fight COVID-19 related infections is appealing, as long as it does not dilute management’s focus and resources on core operations. We are expecting stronger revenue in Q2 (quarter ended January 2022) as a result of a significant ramp up in 2.0 product sales. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 21 Weekly Psychedelic Commentary Psychedelic Industry Performance Source: TMX Money, FRC FRC’s Weekly Pick Our pick last week, Alphabet Inc. (NASDAQ: GOOGL), finished the week up 1.95%. The Electric Vehicle sector remains the most actively discussed among retail investors, followed by cryptos, cannabis, and betting. This week, we are observing strong retail sentiment around Advanced Micro Devices Inc. (NASDAQ: AMD). We suggest exiting if the stock rises by at least 5%, or drops by more than 10%. Our weekly picks, including commentary, can also be viewed on our Youtube channel. Key parameters used may include – a) total number of mentions, b) percentage change in the number of mentions, c) stock sentiment, and d) market capitalization. ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 22 Historic Weekly Returns (Mar 1, 2021 – Present) 39 out of 47 picks have generated positive returns Average return = 16.34% ➢ Mar 1, 2021 – Nov 22, 2021: Returns were calculated based on the assumption that picks were sold at their peak the same week. ➢ Nov 29, 2021 – present (shown in the chart): Returns were calculated based on the exit guidance provided by us prior to each recommendation. ➢ Past performance is not indicative of future performance. Source: FRC ©2022 Fundamental Research Corp. “18+ Years of Bringing Undiscovered Investment Opportunities to the Forefront” Click here to view FRC’s complete list of top picks PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT Page 23 Disclaimers and Disclosure The opinions expressed in this report are the true opinions of the analyst(s) about any companies and industries mentioned. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. Certain companies mentioned in pages 2, 9-13, and 20 are covered by FRC under an issuer paid model. FRC or companies with related management, and Analysts, may hold shares in some companies mentioned in this report including LEO, AUC, SVTN and GOOG. 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