A junior healthcare stock to buy

Healthcare stock Abacus Health Products develops and commercializes over-the-counter topical pain relief and therapeutic skincare products.

Abacus Health Products Inc. (CNSX—ABCS) is poised to become a leader in the topical pain relief and therapeutic skin care market with its all-natural, organic, US Food and Drug Administration-registered products containing hemp-derived CBD (cannabidiol) and active pharmaceutical ingredients, say Toronto-based Haywood Securities analysts Neal Gilmer and Ethan Spence.

Impressed by its CBDMEDIC product which was the leading (based on revenue generated per store per month) CBD brand in retail shelves of CVS Pharmacy—a prominent chain of drugstores in the US—they initiate coverage with a ‘buy’ recommendation and a lofty $21-per-share target price.

Number of retail outlets growing

CBDMEDIC products are available across the US, including select CVS locations, regional and independent pharmacies including Hartig Drug Stores and will soon be available in a growing number of grocery chains and natural product retailers. The products are also available for purchase online.

“Abacus has recently announced that its new CBDMEDIC . . . product line is in the process of being distributed across 2,000 retail pharmacy and grocery chains, including CVS. With an estimated 100,000 retail locations there is clearly ample room for significant growth over the next few years,” the analysts say.

Management has estimated that the number of retail locations will more than double by the end of the third quarter, while the analysts believe the number of retail locations and inherent revenue will expand materially towards the end of 2019 and into 2020, estimating revenues of $29.9 million in 2019, growing to $85.1 million in 2020.

Abacus announced its first purchase order from an unnamed major US retail chain on Feb. 28, 2019. The company’s CBDMEDIC products would be available for sale in the coming weeks and this marked the first time the CBDMEDIC line of products would be available for consumers to purchase through retail stores.

In April, the company announced another purchase order but this time it named CVS Pharmacy, Weis Markets, and Pharma-Care Inc. which are among the five US retailers it will be selling its products through. The agreement brings the CBDMEDIC line of products to over 1,100 pharmacy and grocery retail locations across the US.

Global opportunities lie ahead

The company’s initial product line, CBD Clinic, is now sold in more than 10,000 practitioner offices. While the analysts believe that selling through the retail channel has more growth potential, they reveal that there is still ample opportunity with an estimated 800,000 practitioners in the US.

Beyond the lucrative US CBD market, the company believes that over the next couple of years global distribution would offer significant opportunity for growth. In the near-term Abacus will look to Canadian, European Union and Latin American markets and will partner with local distributors and manufacturers in select markets.

This is an edited version of an article that was originally published for subscribers in the July 19, 2019, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

Investor’s Digest of Canada, MPL Communications Inc.
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