Adult Use Expansion And Cultivation Gains Will Drive Stronger Long Term Cannabis Fundamentals

Catalysts

About Vext Science

Vext Science operates vertically integrated cannabis businesses focused on retail dispensaries and cultivation in Ohio and Arizona.

What are the underlying business or industry changes driving this perspective?

• Rapid scaling of Ohio adult use operations, including the planned build-out to the 8 store license cap and widespread use of drive through formats, is expected to expand high margin retail revenue and lift overall EBITDA as more sales move from wholesale into owned stores.
• Meaningful step ups in cultivation yields, including pilot programs delivering test output nearly 50 percent above current averages, create a path to lower unit costs and structurally higher gross margins as those methods are rolled out across the portfolio.
• Proven ability to remain profitable in a mature, price compressed Arizona market indicates that as weaker operators rationalize capacity, Vext may be positioned to gain share and improve pricing, which could help stabilize revenues and support a recovery in net margins in that state.
• Capital light expansion, combined with operating expenses declining as a percentage of revenue and the major phase of acquisitions and build outs largely completed, may enable the company to convert more of its growth into free cash flow and stronger earnings.
• Growing adult use acceptance in key markets like Ohio, paired with disciplined management of inventory, receivables and tax obligations, could support sustained revenue growth while improving operating cash flow margins as temporary working capital pressures ease.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Vext Science's revenue will grow by 20.0% annually over the next 3 years.
• Analysts are not forecasting that Vext Science will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Vext Science's profit margin will increase from -34.8% to the average CA Pharmaceuticals industry of 3.1% in 3 years.
• If Vext Science's profit margin were to converge on the industry average, you could expect earnings to reach $2.6 million (and earnings per share of $0.01) by about December 2028, up from $-16.7 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 57.2x on those 2028 earnings, up from -2.4x today. This future PE is greater than the current PE for the CA Pharmaceuticals industry at 14.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Persistent wholesale price compression and ongoing oversupply in Arizona, which management does not believe has fully bottomed, could structurally cap pricing power and reduce profitability in that mature market. This could drag on consolidated revenue growth and net margins over the long term.
• Regulatory and permitting delays in Ohio, already evident in the Fairfield store being pushed into early 2026 and future openings being tied to uncertain local approvals, may slow the ramp to the 8 store license cap and delay the realization of scale benefits. This could weaken the trajectory of future revenue and earnings.
• Industry wide improvements in cultivation yields, including Vext’s own aggressive yield gains, risk reinforcing oversupply dynamics over time. This could erode unit pricing and limit the benefit of cost efficiencies, compressing gross margins and constraining earnings expansion.
• Volatility in margins driven by IFRS biological asset revaluations, inventory markdowns and fluctuating wholesale prices can obscure underlying performance and may signal an earnings profile that remains lumpy rather than steadily compounding. This could increase uncertainty around future net margins and operating cash flow.
• Reliance on capital light internal funding of expansion, with only $3.7 million of cash on the balance sheet and working capital sensitivity to inventory and tax payments, leaves limited cushion if market conditions deteriorate or if Ohio and Arizona underperform expectations. This could pressure liquidity, constrain growth spending and ultimately weigh on earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$0.68 for Vext Science based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$0.95, and the most bearish reporting a price target of just CA$0.4.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $82.7 million, earnings will come to $2.6 million, and it would be trading on a PE ratio of 57.2x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of CA$0.23, the analyst price target of CA$0.68 is 66.7% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.