Evogene: Bullish With Canonic's Entry Into Israeli Medical Cannabis Markets
Jun. 16, 2021 3:26 AM ETEvogene Ltd. (EVGN)
Summary
Canonic, a subsidiary of Evogene, will bring its unique cannabis products to the Israeli cannabis market in 2022.
The company has been hard at work deciphering the cannabis genome and breeding special strains to treat specific conditions, like chronic pain and inflammation.
Evogene’s Q1-2021 financial statements reveal plenty of cash and assets to achieve its current strategy.
Evogene’s stock price has been up 262.75% over 12 months and is currently on an uptrend.
I still rate the stock as bullish and give it a short-term target price of $6 per share.
When I last covered Evogene (EVGN), its stock had recently hit its 52-week high of $10.24. Since then, its stock price has been testing lows and is currently sitting in the $3.70 to $4.20 price channel. I recommend continuing a long-hold strategy and offer a short-term options strategy as well. I still rate the company as bullish and encourage the cannabis minded investor to consider the ground-breaking work of Canonic and its future potential, as well as Evogene’s overall value.
I recently caught up with Canonic’s CEO, Dr. Arnon Heyman, who addressed the company’s unique innovations and future plans. The company is deciphering the cannabis genome and applying its findings to genetic breeding with an eye towards medical effectiveness. One advantage for the company is its vast database of cannabis genotypes and large genetics catalogue. Its proprietary strains have the potential to change the cannabis game in terms of potency, yield, and effectiveness.
In 2022, its cannabis products will be available in the Israeli medical cannabis market with the help of its distribution partnership and collaboration with Tikun Olam-Cannbit. Its products will be in the form of dried flower and extracts. The 1st generation strains have been bred to enter the premium product class, while the next generation strains will be further tailored to treat specific ailments, like chronic pain and inflammation. After introducing its products to market, the company has plans in the future to bring its products and genetics into international medical cannabis markets; Europe and North America are in its sights.
Canonic is developing two product families: Metayield and Precise. The aim of Metayield is to increase the total number of active cannabinoids on the plant’s surface. Through breeding and genetic deciphering, Precise looks to produce specific cannabinoid profiles to treat specific symptoms, thus being more medically effective. The company considers the full spectrum of cannabinoids and each one’s medical application. The genetics are bred to produce very specific plant traits with a view to the medical outcomes of its cannabinoid profile.
**Valuations found on www.TIKR.com
Revenues from benchmark payments remain constant for Evogene from quarter to quarter. According to Evogene’s Q1-2021 discussion, two of its subsidiaries, Canonic and Lavie Bio, will have products at the market in 2022 and the company expects their revenues to increase. Meanwhile, the company has plans for Direct-To-Market offerings. The company currently has no bank debt and its assets far outweigh its liabilities. The company has plenty of financial runway to continue fulfilling its business strategy.
The cannabis investor, at this time, must judge the company based on its potential value and growth. Its Q1-2021 discussion mentions the progress of each subsidiary and their potential for products and collaborations. In its Q4-2020 transcript, the company estimates the Israeli medical cannabis market to be worth $260M and to grow up to $830M per year. Canonic expects the number of Israeli cannabis medical users to increase significantly each year.
Evogene’s stock price has gained 262.75% over the last 12 months and is currently on an uptrend
1-year price performance chart from www.StockCharts.com
The company’s stock price hit a 52-week high of $10.24 back in mid-February. After that point, the price began to downtrend over the next three months. The price has tempted its lows and is back on an uptrend. It is still up 249% over the last 12 months. Momentum for the stock has been increasing and it is a daily mover.
18% of the stock is owned by large institutions. ADX buy signals are many and will continue. Even though the price was down-trending, one can see on the chart that it constantly tests upper resistance levels with break-out rallies.
30-day price performance chart from www.StockCharts.com
On the 30-day chart, one can better see the current uptrend and break-outs. The price is up 4.3% over the last month. It is trading near its 20/50/200-day averages. $4 per share seems to be the next resistance level. I set the short-term target price to $6 per share and long-term price between $10 and $15. The ADX line and Bollinger Bands currently indicate another spike. We will see if the stock finds a higher price channel soon.
Take a long position with Evogene and play call options for short-term gains
If the stock returns to the $10 mark, then the movement is 160% of its current price. The long-hold strategy is low-risk and has great potential for growth. For short-term profit, one may look at summer call options with a strike price of $5 in July and August. The idea would be to sell the option at $10 or $20 profit per contract. This would be an income strategy. There is higher risk to playing the call options and no guarantee that the stock will hit the strike price within the timeframe. The wise investor may watch such a short-term strategy and cash it in early when there is upward movement in price.
Risk: Moderate to Low
There is no risk of liquidity for the company. It has plenty of runway for its business operations and current strategy. There are environmental risks to its business, namely the turbulent politics in Israel that can threaten infrastructure and daily life. The business and the cannabis market can be affected as well by these conditions.
The medical cannabis market is recently emerging in Israel and it is yet to be seen how much the market will be worth. Judging from other places where medical legalization has occurred, the growth will be robust. At the same time, these are the risks that investors should consider.
The long-hold strategy has low risk, since the stock has been on an overall long-term uptrend. With the introduction of products to market, its revenues will increase, as well as their valuation. Stock prices can fluctuate a lot based on overall market conditions. Currently, the threat of inflation is negatively influencing the markets.
The short-term call option strategy has moderate risk. If the price falls, the call option becomes worthless. If the price falls too far, the strike price can fall out of plausibility for the strike date, thus the option losing. The idea on the call options strategy is to sell the position when it gains $10 or $20 instead of waiting for it to be in-the-money. I would recommend some combination of long and short-term strategies.
Conclusion
Evogene’s Canonic is firm in its plans to enter the Israeli medical cannabis markets in 2022. The company will bring its innovative cannabis genetics in the form of dried flower and extracts. Its research has focused on deciphering the cannabis genome and breeding strains with specific characteristics, including plant traits and curative effects. Evogene’s financials show increasing progress towards its business strategy. The company will increase its revenue and valuation as new products are introduced to market. I recommend a long-hold strategy for the stock and a short-term call options strategy for extra gains.
This article was written by
Alan Sumler
Disclosure: I am/we are long EVGN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
