Author: Colin Tang, B.Com

Cannabis Industry Performance

As a proxy for performance of the cannabis market, we show the performances of:

  • Horizons Marijuana Life Sciences Index ETF (TSX: HMMJ / “HMMJ”),
  • Standard & Poor’s/MX International Cannabis Index (“MCAN”),
  • Standard & Poor’s/TSX Cannabis Index (“XCAN”).

Source: TMX Money, FRC

Note: MCAN and XCAN was launched on November 18, 2019 and January 20, 2020, respectively.

Over the past week, the HMMJ, MCAN, and XCAN generated a return of -10%, -9%, and -12%, respectively. The cannabis market took a breather after a strong rally last week.

The worst performer this week from the list of companies that we track is Canopy Growth Corp. (TSX: WEED). Canopy reported fourth-quarter results that fell significantly short of expectations. Net revenue in Q4-2020 decreased 13% quarter-over-quarter (“QoQ”). This is primarily attributed to lower Canadian recreational revenue, which decreased 28% QoQ. In a time where Canadian recreational cannabis sales have been soaring due to the COVID-19 pandemic, the deterioration in Canopy’s Canadian recreational revenue indicates a loss in market share.

Aphria Inc. (TSX: APHA) was this week’s best performer from the list of companies that we track. We believe this is due to (1) Aphria announcing that it is moving its U.S. stock listing from the New York Stock Exchange (“NYSE”) in favour of the Nasdaq Global Select Market and (2) greater interest in Aphria in light of Canopy’s market share loss.

Valuation of Select Canadian LPs

The following shows the average Enterprise Value to Revenue (“EV/R”) of the cannabis companies that we track.

Average EV/R (October 2019 – June 2020)

Average EV/R (October 2019-June 2020)

Source: S&P Capital IQ, FRC


Source: S&P Capital IQ, FRC

The average EV/R, as of June 1, 2020, is 10.9x – a deterioration from an average EV/R of 11.5x as of May 25, 2020. The average EV/R, from October 7, 2019 to date, is 12.5x. As a number of companies are not EBITDA positive, we have refrained from tracking the average Enterprise Value to EBITDA (“EV/EBITDA”).

Apart from Canopy’s poor financials results, there were no new material headlines this week.

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Stores, FRC

The average retail price per gram increased nominally from $11.50 to $11.51 – a week-over-week increase of 0.11%.

In the long-term, we continue to reiterate our view that the retail price per gram of cannabis will decrease to combat the black market for cannabis. According to Statistics Canada, the average price of illegal cannabis in Q4-2019 was $5.73. The following shows the trend in pricing for illegal cannabis:

Illegal Cannabis Pricing

Canadian Retail Cannabis Stores

As of June 1, 2020, there are 920 retail cannabis store across Canada. This is a 1% increase from a week ago.

Number of Retail Cannabis Stores in Canada

Source: Provincial Websites, FRC

The following shows retail cannabis stores by province/territory:

Chart showing cannabis stores count

Shown above, Ontario and Quebec are the two largest underserved provinces for cannabis, with a population / store of 189k and 202k, respectively. Growth in Canada’s cannabis market hinges on more retail cannabis store openings in the two aforementioned provinces.

The below chart shows Canadian retail dried cannabis flower pricing since we began price coverage.  

Canadian Retail Dried Cannabis Flower Pricing

Canadian Retail Dried Cannabis Flower Pricing

Source: Online Provincial Cannabis Stores, FRC

Weekly Cannabis Commentary :

Author: Colin Tang, B.Com