The improvement in adjusted EBITDA can be attributed to Indiva reporting strong revenue growth. The better sales numbers were negatively impacted by higher operating expenses and we are not surprised by this increase. We are favorable on how the business has advanced and believe the business is well positioned to capitalize on a burgeoning vertical of the Canadian cannabis industry. 

A key aspect of the Indiva story is related to the relationship it has with leading US cannabis brands like Wana Sour Gummies and Bhang Chocolate. Going forward, we expect these brands to serve as a key growth driver for the business and are favorable on how sales numbers have been ramping up. 

A Leading Canadian Cannabis 2.0 Operator 

One of the most important metrics that was reported by Indiva is the amount of market share that it has in provinces across Canada. According to Hifyre, the Canadian cannabis producer reported to have:

• 48% market share in Ontario (ranked first)
• 59% market share in Alberta (ranked first)
• 50% market share in British Columbia (ranked first)
• 32% market share in Saskatchewan (ranked first)
• 53% market share in Manitoba (ranked first)

Sell through data from Hifyre showed strong sales of Indiva edible products. The cannabis data firm said the company’s edible market share increased to 50% from 46% and we are favorable on the increase. 

Another important metric that was reported by Indiva is related to the cost of distillate. During the quarter, the company sold products that contained 52 million milligrams of distillate. When compared to the prior quarter, this amount represents a more than 70% increase and we find this level of growth to be significant. The average cost of distillate in the second quarter was $0.02 per milligram. In the prior quarter, the average cost of distillate was $0.038 and we are favorable on this decline. 

Over the next two quarters, Indiva expects gross margins to continue to improve and this is primarily related to expected declines in distillate costs as well as improved operating efficiencies from higher production levels. We believe the management team is focused on profitability and consider this to be important for the long-term potential of the business. 

Is Indiva an Acquisition Target?

At current levels, we believe that Indiva is trading at a considerable discount to its peers (from a market capitalization standpoint) and are bullish on the growth prospects that are associated with the business. We are of the opinion that Indiva has a favorable risk-reward profile and we consider it to be an acquisition target. 

The management team provided favorable guidance and stated that Indiva should report strong revenue growth and margin improvements in the second half of 2021. The management expects new product introduction, lower distillate costs and improved operating efficiencies, to play a key role in the success of the business. In the back half of the year, Indiva expects to introduce more than 20 new products and we are favorable on this growth strategy.