q319 top picks - pi financial corp · among the leaders in highest quarterly revenue am ong all...

THIRD QUARTER 2019 TOP PICKS July 4, 2019

Top Picks Q219 PI Top Picks 12.8%*

TSX Index 1.6%

TSX Small Cap Index -1.1%

TSV Venture Index -6.5%

Pricing as of June 28, 2019

Changes to Q3 2019 Top Picks

Added:

Axion Ventures Inc. (V-AXV) Heritage Cannabis Holdings Corp. (C-CANN) Plus Products Inc. (C-PLUS) Superior Gold Inc. (V-SGI)

Removed:

Sangoma Technologies Inc. (V-STC) MediPharm Labs Corp. (V-LABS) Trulieve Cannabis Corp. (C-TRUL) SilverCrest Metals Inc. (V-SIL)

Axion Ventures Inc. (V-AXV)

Gold Standard Ventures (T-GSV)

Heritage Cannabis Holdings Corp. (C-CANN)

Plus Products Inc. (C-PLUS)

Premium Brands Holding Corp. (T-PBH)

Superior Gold Inc. (V-SGI)

A disclosure fact sheet is available on Pages 17-20 of this report.

TOP PICKS – July 4, 2019

2 | Q319

TABLE OF CONTENTS

Second Quarter Top Picks Generate 12.8%* Return 3

Consumer Products

Sector Review 5

Premium Brands Holding Corp. (T-PBH) 6

Special Situations and Cannabis

Sector Review 7

Plus Products Inc. (C-PLUS) 8

Industrials and Cannabis

Sector Review 9

Heritage Cannabis Holdings Corp. (C-CANN) 10

Precious Metals Mining

Sector Review 11

Gold Standard Ventures (T-GSV) 13

Superior Gold Inc. (V-SGI) 14

Technology

Sector Review 15

Axion Ventures Inc. (V-AXV) 16

Disclosure Fact Sheet 17


Q319 | 3

SECOND QUARTER TOP PICKS GENERATE 12.8%* RETURN PI’s Q219 Top picks outperformed the S&P/TSX Composite Index, the S&P/TSX Small Cap Index, and the S&P/TSX Venture Index in the second quarter of 2019. PI’s Top Picks increased by 12.8% in Q219 compared to a 1.6% increase in the S&P/TSX Composite Index, a 1.1% decrease in the S&P/TSX Small Cap Index and a 6.5% decrease in the S&P/TSX Venture Index.

Our Top Picks performance reflects the impact of our commodity-heavy weighting which includes two mining sector picks,

two special situations pick, one technology pick, and one consumer products pick.

Source: PI Financial Corp.

* To calculate Top Pick performance we assume an equal weighted purchase of each of our recommendations. Top Picks are assumed sold at the end of each quarter and the total proceeds are assumed reinvested equally in each of our new Top Picks for the next quarter. Transaction fees are not included. The S&P/TSX Composite index is calculated based on a market capitalization weighting versus our Top Picks performance which uses an equal weighted percentage change that includes dividend payment.

MediPharm Labs (V-LABS) was up 55% in Q219 and outperformed the S&P/TSX Canadian Health Care Index, which was down 9.5% in the quarter. During the quarter the company reported Q1 results that beat estimates and placed the company among the leaders in highest quarterly revenue among all Canadian LPs.

SilverCrest Metals (V-SIL) had a stellar quarter with returns of 18% after delivering robust economics in a PEA for its

flagship Las Chispas project. SilverCrest is fast tracking underground development and permitting in order to make a construction decision in H120.

Premium Brands (T-PBH) saw a 16% return in the second quarter, outperforming the Consumer Staples Index. The stock

got a huge boost when on May 21st, the Canada Pension Plan Investment Board (“CPPIB”) made a ~$200 million investment in Premium Brands. Since that point, the stock has been on a consistent positive trajectory.

Sangoma Technologies Corp. (V-STC), our top pick in the technology sector, was up 5% in Q219, aided by yet another

strong quarter that came in ahead of expectations. With the exception of Shopify (T-SHOP), which was up 43% in the quarter, STC outperformed most of the other companies in the S&P/TSX InfoTech Index, which was up 14% in Q2.

Gold Standard Ventures Corp. (T-GSV) one of our top picks in the mining sector, was up by 1% in Q219, underperforming

the GDXJ by ~9%, which gained 10% in the quarter. The underperformance was due in part to a lack of news flow from the company during the quarter, which released a single set of results in the three month period.

Trulieve Cannabis Corp. (C-TRUL) was down 18% in Q219 as the general cannabis market declined during the quarter.

Trulieve posted strong Q1 FY19 results during the quarter and was the highest revenue generator among public US cannabis operators. The Company ended the quarter with 29 dispensaries in Florida, the most number of dispensaries open in the state, capturing ~56% market share. Trulieve also expanded its footprint in the US by acquiring a dispensary in Connecticut and is on track to be in six states by the end of 2019. Additionally, Management boosted its guidance which incorporates its

12.8%

1.6%

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-6.5%

-10%

-5%

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5%

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15%Q2 2019

PI's Top Picks S&P/TSX COMPOSITE S&P/TSX SMALLCAP S&P/TSX VENTURE COMPOSITE


4 | Q319

expansion plan into Massachusetts as well as continued growth in Florida, Connecticut, and California. Despite the decline in share price, we continue to believe that Trulieve is the leader among its US MSO peers and remains undervalued, with the stock currently trading at 8.0x FY20 EV/EBITDA vs. US MSO peer average FY20 EV/EBITDA of 14.1x.

Source: PI Financial Corp.

* To calculate Top Pick performance we assume an equal weighted purchase of each of our recommendations. Top Picks are assumed sold at the end of each quarter and the total proceeds are assumed reinvested equally in each of our new Top Picks for the next quarter. Transaction fees are not included. The S&P/TSX Composite index is calculated based on a market capitalization weighting versus our Top Picks performance which uses an equal weighted percentage change that includes dividend payment.

Q2 2019 Top PicksValue Mar

31/19Value Jun

30/19Return

Comparable Sub-index return

Sub-index

S&P/TSX VENTURE COMPOSITE 626 585 -6.5% n/aS&P/TSX SMALLCAP 581 575 -1.1% n/aS&P/TSX COMPOSITE 16,117 16,382 1.6% n/a

Medipharm Labs Corp $3.34 $5.18 55.1% -9.6% Health CareSilvercrest Metals Inc $4.38 $5.18 18.3% 9.9% Junior Gold MinePremium Brands Holdings Corp $77.00 $89.51 16.2% 0.7% Consumer StaplesSangoma Technologies Corp $1.51 $1.58 4.6% 14.7% Info TechGold Standard Ventures Corp $1.36 $1.37 0.7% 9.9% Junior Gold MineTrulieve Cannabis Corp $17.55 $14.41 -17.9% -9.6% Health Care

Average 12.8% 2.7%

CONSUMER PRODUCTS – July 4, 2019

Bob Gibson, B.Comm, CFA Q319 | 5

SECTOR OVERVIEW

The S&P/TSX Composite Index rose 0.9% in the quarter, as was the S&P/TSX

Consumer Staples Index. The S&P/TSX Consumer Discretionary Index outperformed both of the, rising 3.0%.

Our Consumer Products covered companies had a mixed performance. Our best

performer was Redishred (V-KUT) up a remarkable 42.7%, while our worst performers in Q219 were Indigo (T-IDG) down 21.3% and Medicure (V-MPH) down 20.3%.

SECTOR OUTLOOK

Statistics Canada’s survey of Retail sales for April 2019 saw a 2.5% gain since

January. This was quite impressive considering gas station sales grew 10.4%. We note that car dealers saw a 2.7% growth and used car dealers had a 3.0% growth in sales. This should positively impact Axis Auto Finance (V-AXIS). Monthly sales from beer, wine and liquor stores stayed flat at $2.0M until April, when we saw a 2.2% increase. We need to see greater strength in Alberta before sales really take off for Alcanna (T-CLIQ). Like alcohol; sports, book and music stores saw relatively flat sales all year until April’s 3.2% increase, which bodes well for Indigo (T-IDG).

We continue to believe that companies with exposure south of the border will outperform. The US economy appears to be chugging along nicely. We note

that Akumin (T-AKU.u), Medicure (V-MPH) and Redishred (V-KUT) operate exclusively in the US High Liner Foods (T-HLF) has three-quarters of its sales in the U.S and Premium Brands (T-PBH) one-third of its sales are in the US.

EBITDA for all companies jumped to one degree or another as corporations adjusted for the impact of IFRS-16. Most companies did not restate last year’s

numbers, so comparing quarter over quarter numbers was made more difficult. Retailers in particular, with all their leases, were especially hard hit. Expect further choppiness as the year unfolds, with comparable EBITDA multiples coming down.

TOP PICK – PREMIUM BRANDS HOLDINGS CORP. (T-PBH)

Shares Market Net Cash P/E 12-MosStock Recent O/S FD Cap. (Debt) Current Target Total Stock Volatility/

Symbol Price (Million) (Million) (Million) FY18A FY19E FY20E FY18A FY19E FY20E FYE Price Return Rating RiskAkumin Inc. T-AKU.u $3.60 61.2 $220 ($286) $155 $227 $297 $0.08 $0.06 $0.36 NMF $7.50 118% BUY ABVAlcanna Inc. T-CLIQ $5.97 37.1 $221 ($9) $659 $775 $858 ($4.49) ($0.04) $0.31 N/A $10.00 74% BUY AVGAxis Auto Finance Inc. V-AXIS $0.42 97.0 $41 ($80) $15.8 $32.5 $41.3 ($0.06) ($0.02) $0.08 N/A $1.35 221% BUY ABVCorby Spirit and Wine Ltd. T-CSW.A $18.15 28.5 $517 $65 $147 $147 $145 $0.90 $0.93 $0.96 19.5x $26.50 51% NEUTRAL AVGGreenSpace Brands Inc V-JTR $0.27 72.1 $19 ($21) $65 $83 $98 ($0.07) ($0.16) ($0.05) N/A $1.00 270% NEUTRAL SPECHigh Liner Foods Inc. T-HLF $8.89 33.8 $300 ($337.2) $1,049 $1,072 $1,151 $0.50 $0.74 $0.74 12.0x $8.75 5% NEUTRAL AVGIndigo Books and Music Inc. T-IDG $7.87 27.0 $212 $249 $1,079 $1,047 $1,167 $0.94 ($1.35) $0.42 N/A $13.25 68% BUY AVGMedicure Inc. V-MPH $5.00 15.5 $78 $56 $29 $27 $41 $0.24 ($0.02) $0.55 N/A $10.00 100% BUY ABVPremium Brands Holdings Corp. T-PBH $89.51 29.8 $2,667 ($1,183) $3,026 $3,644 $3,991 $3.02 $4.08 $4.89 21.9x $100.00 14% BUY AVGRedishred Capital Corp. V-KUT $1.06 66.6 $71 $3 $15 $21 $22 $0.05 $0.03 $0.03 35.3x $1.15 8% BUY ABV

Revenue (Million)

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† PI Financial Corp. has received compensation for acting as fiscal agent or advisor for the subject company over the preceding 12-month period

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CONSUMER PRODUCTS – July 4, 2019

6 | Q319 Bob Gibson, B.Comm, CFA

PREMIUM BRANDS HOLDING CORP. (T-PBH)

Rating: BUY, Target: $100.00

A SYNERGISTIC, GROWTH COMPANY!

Premium Brands Holdings Corporation (T-PBH) is a producer, marketer and distributor of branded specialty food products. PBH has manufacturing and distribution facilities in Canada and the US Premium Brands shares generated a 16% return in the quarter.

Management lowered the bottom range of their EBITDA guidance. Their new EBITDA guidance, before the implementation of IFRS-16, is a range of between $300.0M and $340.0M, down from between $320.0M and $340.0M. Management noted that IFRS- 16 should add about $31M, or 10%, to EBITDA and reduce EPS by about $0.04.

Management highlighted the outbreak of African Swine Fever in China. This has led to a jump in Lean Hog Future price, raising PBH’s CoGS. The Company is implementing selling price increases to counter this.

During the first quarter, revenue increased 32.8% to $776.6M (consensus $765.0M) leading to adj. EBITDA of $60.3M up 39.9% (consensus $61.0M). However, because of IFRS-16, the Company incurred additional amortization and interest expenses, which resulted in adj. earnings of $10.0M or $0.30/share, down from $13.2M or $0.43 last year.

OUTLOOK: PBH management held a tour of their new Centennial Food group’s Toronto facility a few weeks ago. Then management of Centennial, Ready Seafood and Oberto’s told us about their business and the growth opportunities. We came away knowing that our opinion of PBH as a well-run, synergistic, growth company was validated.

Lobster processor Ready Seafood is building a new 50,000 sq. ft. facility in Maine that will triple their capacity. Why, because they can’t meet the demand. Management wants Ready to be a $1B enterprise. The lobster tariff into China is not a concern, as they have a Canadian operation, but ship the Canadian lobsters out of Boston or N.Y.

Oberto’s is known for its jerky, but originally sold Italian deli meats. They are going back to their roots and will be importing Marc Angelo (Concord another PBH company) products from Italy. They are also going to leverage Harvest and Hempler’s (both PBH companies in Canada) dry sausage and fully cooked sausage innovation to deliver new and unique jerky flavour profiles, like wood smoked. They also launched the Cattleman’s Cut brand, which appeals to the more rural consumer and sales have taken off. $24.9M last year projected to be $43.4M this year. We have always been a fan of protein, and feel this business has huge potential.

For 2019 we are forecasting total revenue of $3.6B and adj. EBITDA of $343.8M. We are maintaining our BUY rating, AVERAGE risk rating, and 12-month target of

$100.00.

OPINION AND SHARE INFORMATION

Risk: AVERAGE Current Price: $89.51 Potential Return: 14% 52 week High / Low: $114.48 / $66.99 Shares Outstanding: 37.2M Market Capitalization: $3.3B 30 Day Av. Daily Volume: 116,505 Net Debt: $928M President & CEO: George Paleologou CFO: Will Kalutycz

FINANCIAL SUMMARY

(FYE last Saturday in Dect)

($000's except EPS) 2017 2018 2019e 2020e

Sales 2,198,300 3,025,800 3,643,295 3,990,804 Adj. EBITDA 190,200 251,300 343,856 378,792 Adj. EBITDA % 8.7% 8.3% 9.4% 9.5% Net earnings to S/H's 80,500 98,000 137,889 165,136 EPS (fd) $2.72 $3.02 $4.08 $4.89 Quarterly FY19 Q1 Q2e Q3e Q4e

Sales 776,600 906,563 1,010,625 949,508 EPS (fd) $0.30 $1.11 $1.49 $1.05

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COMPANY DESCRIPTION

Premium Brands Holdings Corporation (T-PBH) is a producer, marketer and distributor of branded specialty food products. PBH has manufacturing and distribution facilities in Canada and the US.

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SPECIAL SITUATIONS AND CANNABIS – July 4, 2019

Jason Zandberg, B.B.A, CFA Q319 | 7

SECTOR OVERVIEW

After a strong Q1, most cannabis stocks had significant declines in Q2. This price

movement continued a trend for the cannabis sector which has experienced major swings over the last four quarters. To illustrate how volatile the cannabis market has been in the 12 months, Canopy Growth’s stock performance by quarter has been +63% in Q318, -42% in Q418, +58% in Q119 and -8% in Q219. It did not matter whether the cannabis stocks were based in Canada or the US, Q2 performance was negative as the large US multi-state operators like Harvest Health (C-HARV), Green Thumb Industries (C-GTII), Trulieve (C-TRUL), Curaleaf (C-CURA) and Cresco (C-CL) were down 58%, 38%, 31%, 18% and 13% respectively.

These poor stock performances didn’t reflect catalysts in the cannabis sector as during

the quarter Canada introduced further details on the upcoming edibles market, Illinois signed legislation to create a recreational cannabis market starting next year and the SAFE Banking Act passed its vote in the House Financial Services Committee and heads for a full vote in the House of Representatives.

We initiated coverage of Plus Products (C-PLUS) during Q2 and we have selected this

leading California edibles company as our Top Pick for Q3. PLUS has the top two bestselling SKUs in California and has recently entered the Nevada market.

Our coverage list was under pressure during Q2 as all 14 stocks posted declines in stock prices. Ranked by best to worst performers were Diversified

Royalty Corp (T-DIV) -1%, Organigram (V-OGI) -6%, Canopy Growth (T-WEED) -9%, Savaria Corp (T-SIS) -12%, Cresco Labs (C-CL) -13%, Cronos Group (T-CRON) -14%, Aurora Cannabis (T-ACB) -15%, Trulieve (C-TRUL) -18%, Origin House (C-OH) -24%, Aphria (T-APHA) -26%, Charlotte’s Web (T-CWEB) -28%, Supreme Cannabis (T-FIRE) -29%, PLUS Products (C-PLUS) -38%, iAnthus Capital (C-IAN) -40% and Vivo Cannabis (V-VIVO) -42%.

SECTOR OUTLOOK

The summer months tended to be relatively quiet in past years with the exception of August 2018 when Constellation Brands announced its second

tranche of investment into Canopy Growth which set the market abuzz. We do not foresee a similar event occurring this year and feel that a sideways or slightly negative market is likely for Q3.

Upcoming catalysts for the US cannabis market include the vote in the House of Representatives for the SAFE Banking Act which, if passed in the House

and the Senate, would make a significant difference for US cannabis operators as this legislation would allow cannabis companies to open bank accounts and allow consumers to use credit cards for purchases.

TOP PICK – PLUS PRODUCTS INC. (C-PLUS)

Shares Market Earnings Per Share (FD) P/E 12-MosStock Recent O/S FD Cap. Indicated Current Target Total Stock Volatility/

Symbol Price (Million) (Million) Yield FY18A FY19E FY20E FY18A FY19E FY20E FYE Price Return Rating RiskAphria Inc. T-APHA $9.21 255.9 $2,357 N/A $37 $189 $561 $0.18 ($0.20) ($0.07) N/A $14.00 52% BUY SPECAurora Cannabis Inc. T-ACB $10.26 1,176.1 $12,067 N/A $55 $240 $901 $0.15 ($0.34) $0.02 N/A $15.00 46% BUY SPECCanopy Growth Corp. T-WEED $52.87 536.7 $28,373 N/A $78 $226 $708 ($0.40) ($2.57) ($0.86) N/A $80.00 51% BUY SPECCharlotte's Web Holdings Inc. † C-CWEB $19.12 106.5 $2,037 N/A $70 $140 $305 $0.13 $0.32 $0.72 NMF $30.00 57% BUY SPECCresco Labs Inc. C-CL $13.54 369.3 $5,001 N/A $43 $329 $775 na $0.56 $2.93 24.2x $23.00 70% BUY SPECCronos Group T-CRON $21.01 482.3 $10,133 NA $16 $48 $172 ($0.11) $1.05 $0.04 20.0x $22.00 5% NEUTRAL SPECDiversified Royalty Corp. T-DIV $3.08 110.5 $340 7.2% $27 $33 $37 $0.09 $0.16 $0.19 19.3x $4.25 45% BUY ABViAnthus Capital Holdings Inc. † C-IAN $4.43 245.4 $1,087 N/A $3 $131 $299 ($0.97) ($0.21) $0.21 N/A $12.00 171% BUY SPECOrganiGram Holdings Inc. V-OGI $8.43 164.5 $1,387 N/A $12 $113 $268 $0.16 $0.25 $0.36 33.7x $12.00 42% BUY SPECOrigin House C-OH $9.19 83.4 $767 N/A $19 $80 $134 ($0.22) ($0.15) ($0.04) N/A N/A N/A TENDER SPECPlus Products Inc. C-PLUS $3.67 48.8 $179 N/A $8 $23 $73 ($0.17) ($0.23) $0.39 N/A $7.75 111% BUY SPECSavaria Corp. T-SIS $13.47 52.0 $700 3.1% $286 $391 $421 $0.40 $0.56 $0.32 24.1x $18.00 37% BUY ABVThe Supreme Cannabis Company † V-FIRE $1.56 375.7 $586 N/A $9 $38 $116 ($0.03) ($0.05) $0.07 N/A $4.50 188% BUY SPECTrulieve Cannabis Corp. C-TRUL $14.41 110.3 $1,590 N/A $103 $238 $391 $0.42 $0.73 $1.09 19.7x $29.00 101% BUY SPECVIVO Cannabis Inc. V-VIVO $0.57 333.7 $190 N/A $10 $26 $54 ($0.11) ($0.02) $0.01 N/A $1.80 216% BUY SPEC

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S&P/TSX SmallCap Index

S&P/TSX Composite Dividend Index

SPECIAL SITUATIONS AND CANNABIS – July 4, 2019

8 | Q319 Jason Zandberg, B.B.A, CFA

PLUS PRODUCTS INC. (C-PLUS)


EDIBLES CHAMPION

Plus Products is a California-based manufacturer of branded micro-dosed cannabis-infused edibles.

Market leader in the California edibles market. PLUS was ranked the 50th best-selling brand out of hundreds of legal cannabis products in California when it received its manufacturing license in December 2017. Since then, PLUS has become the number one edibles brand in California with a market share of 11% within the edibles category and 25% within the gummies category. PLUS has the first and the second best-selling SKU’s across all categories in California.

The rising popularity of edibles products. We have observed that cannabis trends are shifting from dried flower to edibles and concentrates. In Q217, sales of dried flower accounted for 56% of the total product sales in California, while edibles and concentrates accounted for 36%. In Q418, sales of edibles and concentrates accounted for 49% while dried flower only accounted for 42%. This pattern exists in other US markets as well such as in Arizona, Colorado, and Nevada. This means that PLUS has the opportunity to establish its brand in a growing product category in other US markets.

Strong distribution channel. PLUS products’ are distributed to over 350 licensed dispensaries in California through a non-exclusive agreement with Calyx Brands, a leading statewide wholesale distributor. Additionally, PLUS has a direct-selling distribution arrangement throughout California with Eaze, a cannabis delivery app.

Entry to new markets. PLUS plans to replicate its success in other markets. Recently, PLUS entered into the Nevada market via a revenue sharing partnership agreement with TapRoot. We anticipate sales to commence in Q419 and expect a higher retail price as products in Nevada generally command a higher price.

We have chosen Plus Products as our Q3 Top Pick. PLUS represents a cannabis company with established branding and products in California and has a great chance to become one of the few national recognized cannabis brands over time. We project that PLUS will increase its market share in California to 15% in the next three years and eventually be the market leader in the US edibles market.

We forecast revenue of US$23.1M, US$72.7M and US$123.2M for FY18, FY19

and FY20, respectively. EBITDA forecasts for the same period are (US$4.5M), US$13.2M and US$36.7M. We rate Plus Products Inc. (C-PLUS) with a BUY rating (Risk rating: SPECULATIVE) and a 12-month target of $7.75. This represents an EV/EBITDA multiple of 6.2x based on our FY21 EBITDA estimate.


Risk: SPECULATIVE Current Price: $3.67 Potential Return: 111% 52-week High/Low: $7.97 / $3.45 Shares o/s ('000): 43,066 Shares o/s (fd) ('000): 48,785 Market Cap (fd) ('000): $179,040 Cash ('000): $35,576 Debt ('000): $12,044 CEO: Jake Heimark CFO: Jon Paul Shareholders: Mgmt/Insider 36%

FINANCIAL SUMMARY

(FYE Dec 31)

$USD FY18a FY19e FY20e FY21e

Revenue ($K) 8,363 23,108 72,685 123,104 EBITDA ($K) (6,501) (4,530) 13,191 36,697 EBITDA (%) -77.7% -19.6% 18.1% 29.8% Net income ($K) (6,836) (5,613) 9,657 27,999 EPS ($) (0.17) (0.23) 0.39 1.13 EV/EBITDA na na 10.3x 3.7x P/E na na 9.5x 3.3x Quarterly EPS ($) Q1 Q2 Q3 Q4

FY19 (0.14)a (0.01)e (0.05)e (0.03)e

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PI Financial Corp. has received compensation for acting as a fiscal agent for PLUS in the previous 12 months. See the disclosure section for additional details.

COMPANY DESCRIPTION

Plus Products is a California-based leading branded cannabis-infused edibles manufacturer for both medical and recreational markets. .

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INDUSTRIALS AND CANNABIS – July 4, 2019

Devin Schilling, CFA Q319 | 9

SECTOR OVERVIEW

The second quarter of 2019 ended with the S&P/TSX Composite index increasing

1.7%, the S&P/TSX SmallCap index decreasing 1.0%, while the S&P/TSX Venture index was down 6.6%.

Our Cannabis covered companies had a mixed quarter with our Q2 top pick

MediPharm Labs (V-LABS) increasing 55% during the quarter as the company reported Q1 results that beat estimates and placed the company among the leaders in highest quarterly revenue among all Canadian LPs. Canopy Rivers (V-RIV) and HEXO Corp. (T-HEXO) were down 15% and 21% respectively, as the cannabis market started to sell off at the end of April which further accelerated after industry leaders reported weaker than expected results. During the quarter we initiated coverage on Heritage Cannabis Holdings Corp. (C-CANN), a leading cannabis extractor that was up 4.7% since we launched coverage.

Our Industrials covered companies were down 1.8% in the second quarter while the

S&P/TSX Capped Industrials Index was up 5.2% over the same period.

In Q219, North American Construction Group (T-NOA; NYSE-NOA) was down 9.0%.

During the quarter NOA reported weaker than expected Q1 results which missed our estimates. We remain bullish on NOA’s outlook as their backlog stands at over $1.5B as the company continues to execute on its growth strategy. Macro Enterprises (V-MCR) was up 5.3% as the company reported strong Q1 results and provided an encouraging outlook for upcoming work.

SECTOR OUTLOOK

We believe that cannabis extraction companies are well positioned to grow their business with the expected introduction of edibles and vapes later this

year. From our cannabis coverage universe, Heritage Cannabis has been laying the foundation to become a major player in this cannabis sub-sector with one of the most experienced extraction teams in the industry who have a history of creating award winning vape pens and concentrates. We have selected Heritage Cannabis Holdings Corp. (C-CANN), from our cannabis universe as our Q3 top pick.

Despite headwinds currently facing the Energy Services Industry, We continue to believe that Macro Enterprises stands out as a bright spot. The Company

recently reported strong Q1 results and has additional upside optionality with the Trans Mountain Pipeline Expansion.

We also remain bullish on North American Construction Group’s outlook as we believe NOA is well positioned to continue to meaningfully grow its business

both organically and through the integration of recently completed acquisitions.

TOP PICK – HERITAGE CANNABIS HOLDINGS CORP. (C-CANN)

Shares Market Earnings Per Share (FD) P/E 12-MosStock Recent O/S FD Cap. Indicated Current Target Total Stock Volatility/

Symbol Price (Million) (Million) Yield FY18A FY19E FY20E FY18A FY19E FY20E FYE Price Return Rating RiskCanopy Rivers Inc. † V-RIV $3.19 217.7 $694 N/A 50.2 26.3 11.7 $0.36 ($0.09) ($0.04) N/A $9.00 182% BUY SPECHeritage Cannabis Holdings Corp. † C-CANN $0.45 516.5 $232 N/A N/A 3.3 53.8 N/A ($0.03) $0.00 N/A $1.00 122% BUY SPECHEXO Corp. † T-HEXO $6.99 307.7 $2,151 N/A 4.9 57.7 398.3 ($0.17) ($0.12) $0.24 N/A $11.50 65% BUY SPECMacro Enterprises Inc. V-MCR $3.95 32.7 $129 N/A 191.1 351.9 202.4 $0.27 $0.55 $0.22 7.2x $4.75 20% BUY SPECMediPharm Labs Corp. † V-LABS $5.18 152.4 $789 N/A 10.2 105.1 174.2 ($0.12) $0.04 $0.23 NMF $7.50 45% BUY SPECNorth American Construction Group † T-NOA $14.11 27.7 $391 0.6% 410.1 719.5 781.0 $0.54 $1.73 $2.13 8.2x $23.00 64% BUY ABVDevin Schilling owns shares of Macro Enterprises

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INDUSTRIALS AND CANNABIS – July 4, 2019

10 | Q319 Devin Schilling, CFA

HERITAGE CANNABIS HOLDINGS CORP. (C-CANN)


EMERGING FROM THE SHADOWS

Heritage is a Canadian cannabis company that is focused on extraction and

value-add products. The Company consists of four operating subsidiaries representing different parts of the cannabis value chain with Purefarma Solutions being the Company’s award winning Extraction Company. Purefarma conducts its extraction services at both of Heritage’s licensed facilities (CannaCure and Voyage).

We have chosen CANN as our Q3 Top Pick as we believe the Company will significantly benefit from legalization 2.0 later this year which will include the introduction of edibles, vapes, beverages, topicals and other derivative products. All these products require cannabis oil as a base ingredient creating significant demand for Heritage’s third-party extraction services.

Award Winning Products. Purefarma’s extraction services have resulted in products that have won numerous awards including the High Times Cannabis Cup and the Emerald Cup for their premium vapes and concentrates. We believe the Company’s premium product quality creates a key differentiator from the competition.

Unmatched Experience. Purefarma has been conducting extraction activities for over 5 years which is significantly longer than most of the sector peers. This head start has resulted in the Company becoming experts across multiple methods of extraction including C02, hydrocarbon, and ethanol.

New Contracts and Customers Expected. We believe Heritage will onboard more customers in anticipation of the commencement of the edibles and extracts market in Canada as there is currently a shortage of extraction capacity and expertise across the industry.

Industry Trends Supporting Extraction. Sales of cannabis concentrates in mature US cannabis markets have been growing at a faster rate than dried flower and we anticipate it will account for over 60% of the overall market in Canada once regulation permits the sale of these value added products. Lower flower prices in mature cannabis markets have benefited extraction companies with cheaper raw materials helping them to maintain or even expand their margins.

We are forecasting revenue of $3.3M, $53.8M and $106.0M in FY19, FY20 and FY21 respectively. We believe EBITDA and EPS can reach $32.0M and $0.03 in FY21.

We rate Heritage Cannabis Holdings Corp. (C-CANN) with a BUY rating (risk: SPECULATIVE) and a 12-month target of $1.00. Our target represents an EV/EBITDA of 14x based on our FY21 estimates (unchanged).


Risk: SPECULATIVE Current Price: $0.45 Potential Return: 122% 52-week High/Low: $0.72 / $0.15 Shares o/s (fd) ('000): 516,467 Market Cap (fd) ('000): $227,246 Market Float Value ('000): $194,342 Average Trading Volume: 1,677,828 Cash ('000): $18,331 Debt ('000): $215 CEO: Clint Sharples CFO: Erin Prohaska Shareholders: Mgmt/Insider 6% Institutional 1%

FINANCIAL SUMMARY

(FYE Oct 31)

$CAD FY19e FY20e FY21e

Revenue ($K) 3,306 53,778 106,014 EBITDA ($K) (6,298) 11,299 32,003 EBITDA (%) -190.5% 21.0% 30.2% Net income ($K) (12,520) 2,168 16,754 EPS ($) (0.03) 0.00 0.03 EV/EBITDA na 16.5x 5.8x P/E na 103.6x 13.4x Quarterly EPS ($) Q1 Q2 Q3 Q4

FY19 (0.01)a (0.01)e (0.01)e (0.00)e FY20 (0.00)e 0.00e 0.00e 0.00e

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PI Financial Corp. has received compensation for acting as a fiscal agent for CANN in the previous 12 months. See the disclosure section for additional details.

COMPANY DESCRIPTION

Heritage is a Canadian cannabis company focused on extraction and value-add products.

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MINING – July 4, 2019

Chris Thompson, P. Geo. | Philip Ker, P. Geo., MBA Q319 | 11

SECTOR OVERVIEW

We see gold’s recent price strength and breach of the key US$1,400/oz level as a

positive for the precious metals sector. As mentioned in two of our last mining sector research reports (see our May-28-19 and June-25-19 Reports: Mining: Failure to Launch = Buying Opportunities Resurface, and Mining: Valuations at US$1,400/oz Au - Feeling a Little Love), our thesis for precious metals remains unchanged. We continue to see precious metals benefiting from the current dovish sentiment from the Fed and continued uncertainty surrounding the US-China trade talks. We also note recent heightened tensions between the United States and Iran as providing a more recent tail wind for gold as a safe-haven metal.

Whilst early Q219 weakness in the benchmark GDX and GDXJ Indices signaled the

opening of a window of compelling buying opportunities for favorite precious metals equities, gold’s strong price performance in the latter half of Q219 - and recovery of precious metal equities - narrowed this window. Whilst this may seem disheartening for those that feel a bit of “FOMO” (fear of missing out), we note that equity valuations aren’t dissimilar to those seen in H118 when gold traded at a discount to current Spot prices. Layering US$1,400/oz into our coverage, again reveals a suite of attractive valuations (see our June-25-19 Report). As such, we continue to believe now is a good time for investors to sharpen their pencils and look for buying opportunities in the precious metals sector as we approach the Q219 financial reporting season (production results anticipated over the next 2 weeks).

The theme and views identified in two of our last mining sector research reports

remain unchanged, i.e. we continue to suggest that investors gravitate towards names that offer strong execution records, underpinned by assets that can generate meaningful production growth and free cash flow. When evaluating precious metal developer/explorers we suggest projects that have potential to offer compelling economics (for prospective acquirers), complemented with near-term catalyst/newsflow.

SECTOR OUTLOOK

As mentioned in our June-25-19 sector update, we continue to monitor gold looking for support above US$1,400/oz, a price significantly (~7%) higher than

our long-term base case metal price assumption of US$1,300/oz. We are also monitoring silver which still lags gold in YTD performance (Ag: ~+1%, US$15.31/oz vs. Au: ~+10%, US$1,414/oz), reflective of an Au: Ag ratio which has climbed above 90, the highest price of gold relative to silver since 1993. For the time being we have elected to leave our long-term base case metal price assumptions unchanged (Au: US$1,300/oz, Ag: US$17.50/oz). We also note, for the time being, that our medium term silver price forecast of US$16.50/oz remains for the remainder of 2019.

Key drivers in 2H19 will be trade, US dollar weakness and US Fed’s decision on rates. We note that the Fed’s preferred inflation indicator, the Core PCE

Index, is in line with expectations (28 June). At 1.6%, it is still well below the Fed’s 2% inflation target. We see the odds of a rate cut in July fully priced-in. Our view on gold remains constructive, supported by the US Fed recent dovish tone and slowing US and world economic growth. We also note heightened potential for sector consolidation and M & A driven by slowing production and reserve growth, balance sheet strength of growth orientated intermediates with better access to the capital markets (many covered by PI) and attractively priced development/exploration focused equities.

As for mining sector focused equities, common themes at the forefront in investors’ minds remain risk aversion (whether geopolitical or technical), and

rewarding exploration success and/or near-term foreseeable development upside. We expect to see this continue for 2019 underpinning our bias for companies with strong production pipelines and attractive FCF profiles, although we prefer low-risk growth (brownfield expansions) in mining-friendly (low geopolitical risk) jurisdictions.

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https://www.pifinancialcorp.com/email/mining-may28-19.pdf

https://www.pifinancialcorp.com/email/mining-may28-19.pdf

https://www.pifinancialcorp.com/email/mining-jun25-19.pdf





12 | Q319 Chris Thompson, P. Geo. | Philip Ker, P. Geo., MBA

TOP PICK – CHRIS THOMPSON: GOLD STANDARD VENTURES (T-GSV)

TOP PICK – PHIL KER: SUPERIOR GOLD INC. (V-SGI)

Shares Market Current Prodn. Revenue (Million) Cash Flow Per Share (FD) P/CFPS 12-MosStock Recent O/S FD Cap. (Koz Au/Ag Eq. Current Target Total Stock Volatility/

Symbol Price (Million) (Million) or Mlbs Cu Eq.) FY18A FY19E FY20E FY18A FY19E FY20E FYE Price Return Rating RiskAtlantic Gold Corp. V-AGB $2.89 257 $744 94 $128 $159 $176 $0.32 $0.33 $0.37 9.0x $2.95 2% TENDER ABVB2Gold Corp. T-BTO $3.98 1,067 $4,245 961 $1,225 $1,251 $1,413 $0.42 $0.38 $0.59 9.4x $5.10 28% BUY ABVEndeavour Mining Corp. T-EDV $21.35 110 $2,347 643 $752 $815 $954 $2.42 $2.33 $2.99 8.8x $26.50 24% BUY ABVEndeavour Silver Corp. T-EDR $2.70 132 $358 8629 $151 $140 $160 $0.17 $0.10 $0.24 15.7x $3.00 11% BUY ABVFortuna Silver Mines Inc. T-FVI $3.73 165 $614 17486 $263 $239 $367 $0.49 $0.37 $0.66 7.7x $6.70 80% BUY ABVGold Standard Ventures Corp. † T-GSV $1.37 260 $356 0 $0 $0 $0 ($0.02) ($0.03) ($0.03) N/A $2.85 108% BUY SPECGT Gold Corp. † V-GTT $0.91 105 $95 0 $0 $0 $0 ($0.13) ($0.09) ($0.15) N/A $2.60 186% BUY SPECINV Metals Inc. T-INV $0.43 97 $42 0 $0 $0 $0 ($0.04) ($0.03) ($0.15) N/A $1.40 226% BUY SPECK92 Mining Inc. V-KNT $1.78 214 $381 73 $53 $93 $167 $0.12 $0.20 $0.42 15.0x $2.25 26% BUY SPECMAG Silver Corp. T-MAG $13.82 86 $1,189 0 $0 $0 $21 ($0.04) ($0.07) $0.07 N/A $19.00 37% BUY SPECMidas Gold Corp. T-MAX $0.63 237 $149 0 $0 $0 $0 ($0.12) ($0.07) ($0.07) N/A $1.20 90% BUY SPECOceanaGold Corp. T-OGC $3.58 635 $2,273 597 $773 $754 $776 $0.56 $0.47 $0.48 6.4x $5.50 54% BUY ABVOrezone Gold Corp. V-ORE $0.64 212 $136 0 $0 $0 $0 ($0.07) ($0.05) ($0.04) N/A $1.15 80% BUY SPECPan American Silver Corp. T-PAAS $16.93 226 $3,827 90549 $784 $1,384 $1,900 $1.04 $1.38 $2.55 16.3x $23.50 39% BUY ABVSSR Mining Inc. † T-SSRM $17.92 125 $2,235 435 $421 $552 $582 $0.75 $1.05 $1.32 24.0x $22.00 23% BUY ABVVictoria Gold Corp.† V-VIT $0.40 786 $310 42 $0 $73 $294 ($0.01) $0.03 $0.12 N/A $0.80 103% BUY SPEC† PI Financial Corp. has received compensation for acting as fiscal agent or advisor for the subject company over the preceding 12-month period

Company Name

Shares Market Current Prodn. Revenue (Million) Cash Flow Per Share (FD) P/CFPS 12-MosStock Recent O/S BS Cap. (Koz Au/Ag Eq. Current Target Total Stock Volatility/

Symbol Price (Million) (Million) or Mlbs Cu Eq.) FY18A FY19E FY20E FY18A FY19E FY20E FYE Price Return Rating RiskAlio Gold Corp. T-ALO $1.01 85 $86 87 $105 $113 $91 ($0.06) $0.07 $0.08 14.4x $0.85 -16% NEUTRAL SPEC Auryn Resources Inc. T-AUG $2.23 97 $217 N/A N/A N/A N/A N/A N/A N/A N/A $2.50 12% BUY SPEC Barkerville Gold Mines Ltd.† V-BGM $0.36 507 $180 N/A N/A $15 N/A N/A N/A N/A N/A $1.30 266% BUY SPEC Bluestone Resources Inc. † V-BSR $0.99 82 $81 N/A N/A N/A N/A N/A N/A N/A N/A $2.40 142% BUY SPEC Bonterra Resources † V-BTR $2.19 64 $140 N/A N/A N/A $45 N/A N/A $0.09 N/A $3.10 42% BUY SPEC ERO Copper Corp. T-ERO $22.18 85 $1,885 87 $233 $288 $317 $1.11 $1.37 $1.32 16.2x $21.00 -5% NEUTRAL ABVExcellon Resources Inc. T-EXN $0.99 99 $98 2,452 $24 $38 $54 N/A $0.03 $0.21 33.0x $1.00 1% BUY SPEC Integra Resources Corp. † V-ITR $0.88 77 $68 N/A N/A N/A N/A N/A N/A N/A N/A $1.45 65% BUY SPEC Jaguar Mining Inc. T-JAG $0.15 329 $49 74 $95 $96 $103 $0.07 $0.05 $0.05 3.0x $0.10 -33% NEUTRAL SPEC Kirkland Lake Gold Corp. T-KL $56.42 210 $11,848 989 $916 $1,287 $1,389 $2.42 $3.02 $3.38 18.7x $46.75 -17% NEUTRAL ABVNighthawk Gold Corp. † T-NHK $0.50 194 $97 N/A N/A N/A N/A N/A N/A N/A N/A $0.90 80% BUY SPEC Revival Gold Inc.† V-RVG $0.59 42 $25 N/A N/A N/A N/A N/A N/A N/A N/A $1.05 78% BUY SPEC SilverCrest Metals Inc. V-SIL $5.18 85 $440 N/A N/A N/A N/A N/A N/A N/A N/A $7.50 45% BUY SPEC Superior Gold V-SGI $0.72 97 $70 100 $108 $130 $164 $0.04 $0.29 $0.41 2.5x $1.30 81% BUY SPEC Treasury Metals Inc. T-TML $0.29 145 $42 N/A N/A N/A N/A N/A N/A N/A N/A $0.60 107% BUY SPEC Troilus Gold Corp. † V-TLG $0.99 62 $61 N/A N/A N/A N/A N/A N/A N/A N/A $1.45 46% BUY SPEC Wesdome Gold Mines Ltd. T-WDO $5.50 136 $748 83 $116 $140 $163 $0.30 $0.39 $0.34 14.1x $4.50 -18% NEUTRAL SPEC

Company Name



Chris Thompson, P. Geo. Q319 | 13

GOLD STANDARD VENTURES (T-GSV)


ATTRACTIVELY VALUED & PRIMED TO DELIVER H219 VALUE UPSIDE

GSV offers an attractive valuation relative to peers (trading at a discount ~0.36x Adj. P/NAV multiple) supported by district scale exploration upside (208 sq. km), hosted on the second largest contiguous land package on the Carlin Trend in NW Nevada. We feel that GSV’s commanding land package, the involvement of strategic investors (OceanaGold, Goldcorp), Railroad’s stage of development (resource update and PFS anticipated mid-year), the highly prospective nature of key deposits, plus new discoveries rank GSV in a class of its own amongst Nevada and arguably North American focused exploration companies.

Undervalued: Despite just wrapping up announcing results from a very successful 2018 drill season (plus-75,000 m of drilling, plus-400 holes) mainly focused on target testing and expanding and in-filling resources hosted by the company’s Dark Star deposit, GSV’s stock price sits near its 52-week low and has remained so for much of Q219. We understand that GSV requires funding to advance Railroad beyond PFS stage, a contributing factor in the stock’s lackluster YTD performance. Regardless, our investment theses and selection of GSV as our Q319 Top Pick remains unchanged.

M & A Target: Whilst we assume that GSV will develop Railroad to production, we view the project as an attractive acquisition target for a major/intermediate gold producer looking to add North American development stage near/medium term production ounces. In a sector that remains starved of new discoveries and development opportunities, we see companies like GSV that are advancing projects which screen well as potential acquisition candidates providing important building blocks for growth.

Attractive Attributes: We believe that GSV screens well as a potential acquisition target based on merits that we feel acquirers are looking for when entering into M & A transactions. These include LOM (modelled) at 9.5 years, IRR (59%), Payback of ~20% (vs. modelled LOM + construction period), and exploration upside (potential to add value through resource growth and discovery). At Railroad, we model significantly more in-situ oz than those hosted in M & I resources, due in large part to Railroad’s large Inferred resource base (hosted by Pinion and Dark Star) which we see being upgraded to M & I resources in the next resources update.

Balance Sheet: GSV has an est. ~C$11M in cash. While we note GSV’s propensity for raising and spending, aggressively in advancing Railroad, we note that $$$ spent has yielded multiple discoveries. We see this setting GSV apart from peers as the company steers Railroad towards the delivery of a resource update, PFS (mid-year) and potentially a FS by year-end.

We reiterate our BUY rating, ABOVE AVERAGE risk rating, and 12-month target

of C$2.85. Our target reflects a 0.8x TP/NAV multiple (on Railroad), assuming base case long-term metal prices of US$1300/oz Au.


Risk: SPECULATIVE Current Price: $1.37 Potential Return: 108% 52 Week High/Low: C$2.40 / $1.17 Shares Outstanding: 260M 272M (fd) Market Capitalization (C$) $348 30 Day Average Trading Vol: 151K Cash (C$, last reported): $11M Debt (C$, last reported): $1M

FINANCIAL SUMMARY

Valuation Summary C$M C$/fd %NAV

Railroad (DCF 5%) $797.6 $2.95 85% Credits (US$/oz) $113.2 $0.42 12% Corporate Adjustments $25.0 $0.09 3%

Net Asset Value $935.7 $3.46 100%

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COMPANY DESCRIPTION

Gold Standard Ventures (GSV-TSX) offers district scale exploration upside (208 sq. km), hosted by the second largest contiguous land package on the Carlin Trend in northeastern Nevada. We feel that GSV’s commanding land package on the Cardin trend, the involvement of strategic investors (OceanaGold, Goldcorp), Railroad’s stage of development, the highly prospective nature of key deposits (Pinion, Dark Star, North Bullion, Jasperoid Wash and Dixie) plus new discoveries ranks GSV in a class of its own amongst Nevada - and arguably N American focused - exploration companies.

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14 | Q319 Philip Ker, P. Geo., MBA

SUPERIOR GOLD INC. (V-SGI)


LEVERAGING A RISING GOLD PRICE WITH A SUPERIOR CALL

We are making Superior Gold our Q319 Top Pick as we see recent short term operational challenges experienced in Q418 and early Q119 now mitigated. We viewed the operational blip as a learning tool for management and its operations team to pin point and focus on operating efficiencies, mine plan and cash flow.

Operational challenges experienced in Q418 included; equipment availability, power interruptions and a reduced grade profile resulting in a weak end to Superior’s annual production tally. Since, Superior hired a new COO who instilled new mining methods, a mine plan with an increased cut-off grade, ceased open pit operations at Hermes and improved equipment availability. His efforts led to Q119 seeing a 10.7% increase in stoping head grades to 2.79g/t. In recent news, Superior noted that April head grades exceeded 3g/t which are similar to head grades realized back in 2017.

Looking ahead, we expect Superior to continue to build upon its improving operations, focus on a new satellite open pit for supplemental ore feed and gradually increase its overall production and cash flow. Given our recent analysis of valuations for our coverage universe at $1,400/oz Au, we point to Superior having a top-tier delta for both NAVPS (20%) and 2020 CFPS (22%) growth versus numbers from our current long-term $1,300/oz price used in our valuations. This, in conjunction with no significant capital requirements for such growth leaves Superior as a go-to leverage name in the current rising gold price environment.

Catalysts include in the near term include:

Delivery of quarterly operating results – targeting 28,000oz in Q219;

Plutonic and regional exploration results; and

Go ahead decision for open pit mining at Plutonic East and/or Hermes South.

Superior Gold continues to trade at an attractive valuation despite its recent success and rise of ~30% in the past 30 days. Superior presently trades at 0.3x our NAVPS and below the peer group average of 0.75x for junior gold producers within our coverage universe. We anticipate that with delivery and sustainable execution, the market will reward Superior in a re-rating of its valuation. We continue to maintain our BUY rating and $1.30/sh target price for Superior Gold.


Risk: SPECULATIVE Current Price: $0.72 Potential Return: 81% 52-week High/ Low: $1.36 / $0.44 Shares Outstanding: 97M (basic) 97M (fd) Market Capitalization (C$): 69M 3-Month Avg. Daily Volume: 106K Working Capital (C$ est): $7M Enterprise Value (C$): $62M CEO: Chris Bradbrook

FINANCIAL SUMMARY

US$ Values 2018A 2019E 2020E 2021E

Revenue ($M) 108 130 164 175 Gold Sold (Koz) 90.1 99.6 126.2 134.7 Cash Costs ($/oz) 1082 890 839 757 Net Income ($M) (13) 7 14 23 2019 Q1E Q2E Q3E Q4E

EPS ($0.03) $0.05 $0.02 $0.03 CFPS $0.03 $0.11 $0.07 $0.08

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COMPANY DESCRIPTION

Superior Gold is a Canadian based gold producer that owns 100% of the Plutonic Gold operations located in Western Australia. The Plutonic Gold operations include the Plutonic underground gold mine, which is a producing underground operation with a central mill, the Hermes open pit gold mine and up to an 80% interest in the Bryah Basin joint venture. Superior Gold is focused on expanding production at the Plutonic Gold operations and building an intermediate gold producer with superior returns for shareholders.

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TECHNOLOGY – July 4, 2019

David Kwan, CFA Q319 | 15

SECTOR OVERVIEW

Tech remains the leader. The technology sector continues to lead the market. In

Canada, the TSX InfoTech Index rose 14.7% in Q2, well ahead of the TSX Composite Index which increased just 1.6% and the TSX Venture Composite which fell 6.6%. The InfoTech Index was again the best performing sector in the quarter.

The Canadian tech outperformance was driven by Shopify (up 43%; T-SHOP). Other

solid performances were put in by CGI Group (up 10%; T-GIB.a) and Constellation Software (up 9%; T-CSU).

In the US, the Nasdaq was up 3.5% in Q2, slightly behind the S&P 500 (up 3.8%) and

ahead of the Dow Jones (up 2.6%). The Nasdaq-100 Technology Index was up 4.0% in Q2.

Within our coverage universe, the top performer was Quorum Information

Technologies (V-QIS), which was up 18%, followed by our Q2 Top Pick, Sangoma Technologies (V-STC), which was up 5%, and VersaPay (V-VPY), which was up 3%.

SECTOR OUTLOOK

The 5G race is heating up. Carriers and OEMs around the globe are jockeying for position, as the push to deploy 5G networks globally accelerates. In terms

of carriers, Verizon launched its 5G Ultra-Wideband service on April 3rd in Chicago and Minneapolis, with more than 30 US cities expected to see 5G service this year while AT&T has launched 5G service in parts of 19 cities in the US and expects to have “nationwide” 5G coverage in by early 2020. AT&T is focusing their 5G efforts on business customers (e.g., manufacturers, hospitals, etc.) where the use cases and applications would see greater benefit from the significant improvement in speeds and latency. Meanwhile, Sprint also launched 5G in nine cities, and is currently awaiting regulatory approval of its merger with T-Mobile, who also just launched 5G in six US cities. Korea and China are among a handful of other countries that have also been early movers in the 5G race.

Meanwhile, OEM’s vying for market share have been releasing 5G-enabled smartphones with Samsung releasing its S10 5G, Motorola releasing its Z3 with

the 5G moto mod, LG announcing its V50 ThinQ 5G and Huawei launching the Mate 20 X (in U.K.). Apple meanwhile has had delays in securing 5G chipsets/modems which has forced the company to delay its 5G iPhone launch until 2020 (at the earliest).

In the network equipment market, Ericsson, Nokia, and Samsung in particular are looking to capitalize on the US-driven campaign to ban Huawei equipment

from (5G) telecom networks globally.

TOP PICK – AXION VENTURES INC. (V-AXV)

Shares Market Net Cash Revenue (Million) EV/EBITDA 12-MosStock Recent O/S FD Cap. (Debt) Current Target Total Stock Volatility/

Symbol Price (Million) (Million) (Million) FY18A FY19E FY20E FY18A FY19E FY20E FYE Price Return Rating RiskAbsolute Software Corp. T-ABT $7.98 42.1 $336 US$35.5 US$93.6 US$98.4 US$103.9 US$9.2 US$19.0 US$19.7 8.6x $12.00 54% BUY ABVAxion Ventures Inc. † V-AXV $0.91 250.8 $228 ($7.7) $8.9 $21.0 $60.4 ($6.7) $4.8 $35.8 49.2x $1.75 N/A BUY SPECBaylin Technologies Inc. T-BYL $3.62 41.4 $150 ($45.2) $136.2 $165.0 $179.5 $15.3 $21.6 $26.6 4.6x $5.80 69% BUY ABVBlackline Safety Corp.† V-BLN $5.90 48.2 $284 $33.2 $17.8 $33.1 $53.5 ($6.2) ($4.8) $5.1 N/A $9.00 53% BUY SPECEspial Group Inc. T-ESP $1.57 36.0 $57 $33.7 $26.7 $26.5 $29.3 ($1.6) ($0.1) $1.2 N/A TENDER N/A TENDER ABVProntoForms Corp. V-PFM $0.48 116.5 $56 US$0.2 US$12.1 US$15.4 US$20.1 (US$1.8) (US$1.1) (US$0.1) N/A $0.85 77% BUY SPECQuorum Information Technologies V-QIS $0.77 60.9 $47 ($9.7) $16.4 $30.6 $34.0 $1.9 $4.9 $6.8 9.3x $1.25 62% BUY SPECSangoma Technologies Corp. V-STC $1.58 56.4 $89 ($16.9) $57.4 N/A N/A $6.3 N/A N/A N/A RESTRICTED N/A RESTRICTED RESTRICTEDVecima Networks Inc T-VCM $9.00 22.4 $202 $45.2 $78.1 $88.7 $104.0 $14.5 $9.6 $20.5 7.6x $9.40 7% NEUTRAL ABVVersaPay Corp.† V-VPY $1.50 43.7 $66 $11.1 $4.7 $9.6 $17.8 ($11.5) ($6.9) ($1.0) N/A $2.30 53% BUY SPEC† PI Financial Corp. has received compensation for acting as fiscal agent or advisor for the subject company over the preceding 12-month period

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S&P/TSX Capped Technology Index

TECHNOLOGY – July 4, 2019

16 | Q319 David Kwan, CFA

AXION VENTURES INC. (V-AXV)

Rating: BUY, Target: C$1.75

NEARING AN INFLECTION POINT

We have chosen AXV as our Top Pick for Q319.

Axion Ventures is an investment company focused on the video gaming market. The Company has made investments in Axion Games, Innovega, Red Anchor Trading, Axia Corp. Ltd., and True Axion Interactive, a joint venture with True Corp. (Thailand).

Major content update for Rising Fire (RF) could lead to a key inflection point.

We are expecting to receive an update on key game metrics for RF in the very near-term, following the major content update/payload that was released a month ago. Should the data be positive (e.g., retention rates >15%), we believe its publishing partner Tencent will begin to ramp up S&M spend for the game, including expanding the game’s exposure from ~1.5M gamers currently to 15M and eventually 100M gamers on its WeGame platform (possibly over the next year). As a reminder, AXV receives a gross revenue royalty of ~22-26% from Tencent for the China PC/online gaming market.

Licensing deals around the corner? AXV is currently negotiating licensing deals for RF in various regions including Japan/Korea, Southeast Asia, and Latin America as well as on various platforms, including the rapidly growing mobile market (as the license with Tencent only covers the China PC/online market). INVICTUS: Lost Soul, the first mobile game developed by True Axion Interactive, has also garnered significant interest from potential licensees and it continues to be featured in Apple Arcade events throughout Southeast Asia, helping increase INVICTUS’ exposure in one of the largest gaming markets globally.

Management expects to sign (potentially lucrative) licensing deals within the next few months that will add very high margin licensing revenues.

Monetizing the pipeline. In addition to RF and INVICTUS, the Company has built up a solid portfolio of games. Its longest standing game, MARS (launched in 2011; +23M downloads globally), is set for its first major content update in two years, which could drive a reacceleration in game sales while recently released mobile game Fighter Royale could provide some incremental upside. We also note that a mobile version of RF is set for release later this year.

Key near term-catalysts: RF game updates, an announcement on Tencent expanding RF’s exposure on WeGame (and a related increase in S&M investments in the game), and the announcement of licensing agreements (particularly for RF, as well as INVICTUS).

Attractive discount valuation. AXV is trading at just 3.0x our CY20 revenue estimate, below the peer group at 3.3x, while on CY20 Adj. EBITDA, AXV is trading at just 5.3x, well below the peer group at 11.5x.

FORECAST/OUTLOOK: We are forecasting revenue of $21.0M in FY19 and $60.4M in FY20 with Adj. EBITDA of $4.8M in FY19 and $35.8M in FY20.

We have a BUY recommendation, C$1.75/share target price, and a SPECULATIVE risk rating on Axion Ventures Inc. Our target price is based on our sum-of-the-parts valuation.


Risk: SPECULATIVE Current Price: $0.91 Potential return: 92% 52-week High / Low: $1.25 / $0.70 Shares Outstanding: 245.1 M (basic) 251.3M (fd) Market Capitalization: $228.7M (fd) Float: 115.0M 3-Month Avg. Daily Volume: 54,913 Cash & Restricted Cash: $4.0M Total Debt: $11.7M Insider Ownership: 44.9% CEO: J. Todd Bonner

FINANCIAL SUMMARY

FYE Jun 30) FY17 FY18 FY19e FY20e

Revenue ($M) 6.7 8.9 21.0 60.4 Adj. EBITDA ($M) (7.4) (6.7) 4.8 35.8 Adj. EPS (0.04) (0.05) 0.01 0.13 FY17 FY18 FY19e FY20e

EV/Revenue 27.3x 20.4x 8.7x 3.0x EV/Adj. EBITDA N/A N/A 38.2x 5.1x P/E N/A N/A 88.9x 5.5x Quarterly (FY19) Q1 Q2e Q3e Q4e

Revenue ($M) 1.2 1.2 7.8 10.8 Adj. EBITDA ($M) (2.3) (2.3) 3.4 6.0 EPS (0.01) (0.01) 0.01 0.02

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PI Financial Corp. has received compensation for acting as a fiscal agent for AXV in the previous 12 months. See the disclosure section for additional details.

COMPANY DESCRIPTION

Axion Ventures is an investment company focused on the video gaming market. The Company has made investments in Axion Games, Innovega, Red Anchor Trading, Axia Corp. Ltd., and True Axion Interactive, a joint venture with True Corp. (Thailand).

TOP PICK – July 4, 2019

Q319 | 17

Disclosure Fact Sheet

Ratings Price Volatility / Risk BUY : recommendation: stock is expected to appreciate from its current price level at least 10-20% in the next 12 months. NEUTRAL : recommendation: stock is expected to trade in a narrow range from its current price level in the next 12 months. SELL : recommendation: stock is expected to decline from its current price level at least 10-20% in the next 12 months. U/R : Under Review N/R : No Rating TENDER: Investors are guided to tender to the terms of the takeover offer. Analyst recommendations and targets are based on the stock’s expected return over a 12-month period or may be based on the company achieving specific fundamental results. Under certain circumstances, and at the discretion of the analyst, a recommendation may be applied for a shorter time period. The basis for the variability in the expected percentage change for a recommendation, relates to the differences in the risk ratings applied to individual stocks. For instance stocks that are rated Speculative must be expected to appreciate at the high end of the range of 10-20% over a 12-month period.

SPECULATIVE : The Company has no established operating revenue, and/or balance sheet or cash flow concerns exist. Typically low public float or lack of liquidity exists. Rated for risk tolerant investors only. ABOVE AVERAGE : Revenue and earnings predictability may not be established. Balance sheet or cash flow concerns may exist. Stock may exhibit low liquidity. AVERAGE : Average revenue and earnings predictability has been established; no significant cash flow/balance sheet concerns are foreseeable over the next 12 months. Reasonable liquidity exists. Price Volatility/Risk analysis while broad based includes the risks associated with a company’s balance sheet, variability of revenue or earnings, industry or sector risks, and liquidity risk.

Analyst Certification I, Bob Gibson, Philip Ker, David Kwan, Devin Schilling, Chris Thompson, and Jason Zandberg, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly related to the specific recommendations or views expressed in this report. I am the research analyst primarily responsible for preparing this report.

Research Disclosures Company Disclosure Particulars Axion Ventures Inc. 3, 4 Gold Standard Ventures 4 MediPharm Labs Corp. 4 Plus Products Inc. 3, 4 Premium Brands Holding Corp. 3, 4 Superior Gold Inc. 4 Applicability 1. PI Financial Corp. and its affiliates’ holdings in the subject company’s securities, in aggregate exceeds 1% of each company’s issued and

outstanding securities. 2. The analyst(s) responsible for the report or recommendation on the subject company, a member of the research analyst’s

household, and associate of the research analyst, or any individual directly involved in the preparation of this report, have a financial interest in, or exercises investment discretion or control over, securities issued by the following companies.

3. PI Financial Corp. and/or its affiliates have received compensation for investment banking services for the subject company over the preceding 12-month period.

4. PI Financial Corp. and/or its affiliates expect to receive or intend to seek compensation for investment banking services from the subject company.

5. PI Financial Corp. and/or its affiliates have managed or co-managed a public offering of securities for the subject company in the past 12 months.

6. The following director(s), officer(s) or employee(s) of PI Financial Corp. is a director of the subject company in which PI provides research coverage.

7. A member of the research analyst’s household serves as an officer, director or advisory board member of the subject company. 8. PI Financial Corp. and/or its affiliates make a market in the securities of the subject company. 9. Company has partially funded previous analyst visits to its projects.

10. Additional disclosure:

General Disclosure The affiliates of PI Financial Corp. are PI Financial (US) Corp., PI Financial Services Corp., and PI Capital Corp. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is amongst other factors determined by revenue generated directly or indirectly from various departments including Investment Banking. Evaluation is largely on an activity-based system that


18 | Q319

includes some of the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance, and client feedback. Analysts and all other Research staff are not directly compensated for specific Investment Banking transactions. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of PI Financial Corp. PI Financial Corp.’s policies and procedures regarding dissemination of research, stock rating and target price changes can be reviewed on our corporate website at www.pifinancial.com (Research: Research and Conflict Disclosure). The attached summarizes PI’s analysts’ review of the material operations of the attached company(s).

Analyst Company Type of Review Operations / Project Date David Kwan Axion Ventures Inc. Management Update Vancouver, BC 06/19 Chris Thompson Gold Standard Ventures Management Update Vancouver BC 05/19 Devin Schilling Heritage Cannabis Holdings Corp. Site Visit Fort Erie, ON 05/19 Jason Zandberg PLUS Products Management Update Vancouver, BC 06/19 Bob Gibson Premium Brands Holdings Corp. Management Update All 05/19 Phil Ker Superior Gold In. Management Update Plutonic 05/19

Disclosure to US Residents PI Financial (US) Corp. is a US registered broker-dealer and subsidiary of PI Financial Corp. PI Financial (US) Corp. accepts responsibility for the contents of this research report, subject to the terms and limitations as set out above. US residents seeking to effect a transaction in any security discussed herein should contact PI Financial (US) Corp. directly.

Recommendations Number of Recommendations Percentage BUY 62 82.67% NEUTRAL 10 13.33% SELL 0 0.00% TENDER 2 2.67% U/R 1 1.33% N/R 0 0.00%

TOTAL 75

Stock Rating and Target Changes For reports that cover more than six subject companies, the reader is referred to our corporate web site for information regarding stock ratings and target changes. www.pifinancial.com (Research: Research and Conflict Disclosure).

Axion Ventures Inc. (Initiated Coverage: May 31/17) Date Rating Change Target Change Share Price

Mar 25/19 Buy C$1.50 to C$1.75 C$1.15 Jun 06/18 Buy C$1.15 to C$1.50 C$0.87 May 31/17 Buy C$1.15C $0.50


Q319 | 19

Gold Standard Ventures. (Initiated Coverage: Dec 17/18 Date Rating Change Target Change Share Price

Dec 17/18 Buy $2.85 $1.62

Heritage Cannabis Holdings Corp. (Initiated Coverage: Jun 27/19 Date Rating Change Target Change Share Price

Jun 27/19 Buy $1.00 $0.43

PLUS Products Inc. (Initiated Coverage: May 29, 2019) Date Rating Change Target Change Share Price

May 28/19 Buy $7.75 $4.70

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20 | Q319

Premium Brands Holdings Corp. (Initiated Coverage Apr 23/09)

Date Rating Change Target Change Share Price

Feb 28/19 Buy $113.00 to $100.00 $74.00* Nov 13/18 Buy $128.00 to $113.00 $74.00* Mar 15/18 Buy $115.00 to $128.00 $110.85 Nov 22/17 Buy $112.00 to $115.00 $97.70 Sept 29/17 Buy $110.00 to $112.00 $98.11 Aug 14/17 Buy $90.75 to $110.00 $89.89 May 15/17 Buy $88.75 to $90.75 $85.28 Mar 29/17 Buy $78.25 to $88.75 $82.86 Mar 16/17 Buy from Neutral $67.50 to $78.25 $73.30 Dec 1/16 Neutral from Buy $67.50 $70.59 Nov 3/16 Buy $62.00 to $67.50 $63.46 Aug 9/16 Buy $62.00 to $65.00 $59.00 Apr 14/16 Buy $55.00 to $62.00 $58.36 Mar 11/16 Buy $40.00 to $55.00 $48.39 Nov 11/15 Buy $36.00 to $40.00 $36.14* Aug 7/15 Buy $34.00 to $36.00 $33.94 Apr 23/15 Buy $30.50 to $34.00 $30.06 Mar 13/15 Buy $27.00 to $30.50 $26.17 Jan 22/14 Buy $25.00 to $27.00 $22.46 Nov 9/12 Buy $25.00 to $22.00 $18.08 Aug 10/12 Buy $21.00 to $25.00 $18.11 Mar 25/11 Buy $16.25 to $21.00 $17.12 Jan 11/10 Buy $12.50 to $16.25 $13.66 Aug 7/09 name change: formerly Premium Brands Income Fund Apr 23/09 Buy $12.50 $8.65 *intraday

Superior Gold Inc. (Re:-Initiated Coverage: Nov 28/18) Date Rating Change Target Change Share Price

Mar 25/19 Buy $1.50 to $1.30 $0.58 Feb 25/19 Buy $1.60 to $1.50 $0.72 Feb 13/19 Buy $1.95 to $1.60 $0.73 Nov 28/18 Buy $1.95 $0.87

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Participants of all Canadian Marketplaces. Members: Investment Industry Regulatory Organization of Canada, Canadian Investor Protection Fund and AdvantageBC International Busi-

ness Centre - Vancouver. Estimates and projections contained herein are our own and are based on assumptions which we believe to be reasonable. Information presented

herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness, nor in providing it does PI Financial Corp. assume any

responsibility or liability. This information is given as of the date appearing on this report, and PI Financial Corp. assumes no obligation to update the information or advise on

further developments relating to securities. PI Financial Corp. and its affiliates, as well as their respective partners, directors, shareholders, and employees may have a position

in the securities mentioned herein and may make purchases and/or sales from time to time. PI Financial Corp. may act, or may have acted in the past, as a financial advisor,

fiscal agent or underwriter for certain of the companies mentioned herein and may receive, or may have received, a remuneration for their services from those companies. This

report is not to be construed as an offer to sell, or the solicitation of an offer to buy, securities and is intended for distribution only in those jurisdictions where PI Financial Corp.

is registered as an advisor or a dealer in securities. Any distribution or dissemination of this report in any other jurisdiction is strictly prohibited.

For further disclosure information, reader is referred to the disclosure section of our website.

Capital Markets Group

Research Analysts

Special SituationsBob Gibson, B.Comm, CFA416.883.9047

MiningChris Thompson, P. GeoHead of Mining Research604.718.7549

Philip Ker, P.Geo, MBA647.789.2407

Special Situations & CannabisJason Zandberg, B.BA, CFA604.718.7541

Devin Schilling, CFA604.718.7557

Technology David Kwan, CFA604.718.7528

Associate AnalystJustin Stevens, EIT604.718.7542

Research AssociatesAkin Akinwale, B. Eng647.789.2415

Fayassir Haqna, B.BA604.718.7556

Neehal Upadhyaya, BAFM, MAcc416.775.5107

Marketing and PublishingMichelle Kwok604.664.2724

Institutional Sales

VancouverJim Danis, B.Sc. (Hons.)604.718.7551

Jeremiah Katz604.664.2916

David Goguen, CFA 604.664.2963

Doug Melton, FCSI604.718.7532

Brodie Dunlop604.718.7533

TorontoJose Estevez, CFA416.883.9042

John McBride416.883.9045

Institutional Trading

VancouverDarren Ricci604.664.2998 or 800.667.6124 (US) or 877.682.7233 (CDN)

Adam Dell, CFA604.718.7517 or 888.525.8811

Calvin Buchanan604.718.7535

TorontoLucas Atkinson416.883.9048

Scott Brophy416.883.9043

Investment Banking

MiningDan Barnholden, MBA604.664.3638

Russell Mills, CFA, MFin647.789.2405

Tim Graham, B.Comm604.664.3656

Jim Locke, CFA604.664.2670

TechnologyBlake Corbet, BA604.664.2967

Vay Tham647.789.2417

Equity Capital Markets/SyndicationTim Johnston416.775.5112

Trina Wang604.664.3637

Investment Banking AssociateJoe Brunner604.664.3633

Aaron Eisenberg647.789.2411

Investment Banking AnalystTrevor Anderson604.718.7516

Head OfficeSuite 1900, 666 Burrard Street

Vancouver, BC V6C 3N1

ph: 604.664.2900 fx: 604.664.2666

Calgary OfficeSuite 1560, 300 5th Avenue SW

Calgary, AB T2P 3C4

ph: 403.543.2900 fx: 403.543.2800

Toronto OfficeSuite 3401, 40 King Street West

Toronto, ON M5H 3Y2

ph: 416.883.9040 fx: 647.789.2401

PI Financial Corp. www.pifinancial.com

Managing Director, Head of Research

Bob Gibson, B.Comm, CFA 416.883.9047

Managing Director, SVP Capital Markets

Jeremiah Katz604.664.2916

Managing Director, Head of Institutional Sales & TradingJim Danis, B.Sc. (Hons.)604.718.7551

Managing Director, Co-Head of Investment BankingBlake Corbet, BA604.664.2967

Managing Director, Co-Head of Investment BankingDan Barnholden, MBA604.664.3638

For a complete list of branch office locations and contact information, please go to www.pifinancialcorp.com

q319 top picks - pi financial corp · among the leaders in highest quarterly revenue am ong all...

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