Weekly Cannabis Commentary :

Author: Colin Tang, B.Com

Cannabis Industry Performance

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

Over the past week, the Horizons Marijuana Life Sciences ETF (TSX: HMMJ / “HMMJ”), the Standard & Poor’s/MX International Cannabis Index (“MCAN”), and the Standard & Poor’s/TSX Cannabis Index (“XCAN”) generated a return of -6%, -4%, and -5%, respectively. This week’s poor performance is attributed to the resurgence of coronavirus cases in the United States, which sparked fears of a second lockdown.

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)

Source: S&P Capital IQ, FRC

Cannabis Companies TEV Revenue

Source: S&P Capital IQ, FRC

The average EV/R, as of June 29, 2020, is 9.6x – a deterioration from an average EV/R of 10.7x as of June 22, 2020. The average EV/R, from October 7, 2019 to date, is 12.3x. As a number of companies are not EBITDA positive, we have refrained from tracking the average Enterprise Value to EBITDA (“EV/EBITDA”).

This week, we look at cannabis sales in several U.S. states.

Cannabis Sales in the United States

The following shows adult-use cannabis sales in (1) California, (2) Colorado, (3) Nevada, (4), Oregon and (5) Washington state. These five states, according to our research, are currently the largest markets for recreational cannabis in the United States.

Adult-Use Cannabis Sales by month & market in 2020

Source: Marijuana Business Daily

To summarize our discussions below, cannabis sales have remained strong in several states amid the current economic downturn. In states were cannabis sales declined, we believe it is primarily attributed to the lack of tourism.

 California: Adult-use cannabis sales were US$319 million in May 2020, a year-over-year (“YoY”) improvement of 39%. Although the COVID-19 pandemic has caused a drag in cannabis sales (February and March showed a YoY improvement of 84% and 78%, respectively), it is encouraging to see cannabis sales in May 2020 be higher on a month-over-month (“MoM”) basis. California illustrates the resilience of cannabis sales during an economic downturn.

 Colorado: Adult-use cannabis sales were US$113 million in May 2020, a YoY decline of 1%. According to the Colorado Office of Economic Development and International Trade (“OEDIT”), tourism is one of the strongest economic drivers of Colorado. With this in mind, and noting travel restrictions in the U.S. due to COVID-19, the decline in cannabis sales in the state of Colorado is to be expected.

Nevada: Adult-use cannabis sales were US$43 million in May 2020, a YoY decline of 24%. According to Marijuana Business Daily, 80% of adult-use cannabis sales in Nevada takes place in Clark County, where Las Vegas is located. With Las Vegas essentially shut down due to COVID-19, the decline in cannabis sales in the state of Nevada is to be expected.

Oregon: Adult-use cannabis sales were US$103 million in May 2020, a YoY improvement of 58%. Cannabis sales have been steadily rising amid the COVID-19 pandemic. Noting the strong YoY and MoM increase, the state of Oregon illustrates the resilience of cannabis sales during an economic downturn.

Washington State: Adult-use cannabis sales were US$119 million in May 2020, a YoY improvement of 30%. Cannabis sales have been steadily rising amid the COVID-19 pandemic. Again, this illustrates the resilience of cannabis sales during an economic downturn.

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Stores, FRC

The average retail price per gram decreased 0.62% week-over-week to reach $11.36. Over 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 per gram price of illegal cannabis in Q4-2019 was $5.73. The following shows the trend in pricing for illegal cannabis:

Illegal Cannabis Pricing

Source: Statistics Canada, FRC

Retail Cannabis Stores

As of June 29, 2020, there are 964 retail cannabis stores across Canada. This is a 1% increase from a week ago.

Number of Retail Cannabis Stores in canada

Source: Provincial Websites, FRC

 

Source: Provincial Websites, FRC

The following shows the number of retail cannabis stores by province/territory:

As shown above, Ontario and Quebec are the two largest underserved provinces for cannabis, with a population / store of 153k 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

Source: Online Provincial Cannabis Stores, FRC

Weekly Cannabis Commentary :

Author: Colin Tang, B.Com

Source: https://www.researchfrc.com//weekly-cannabis-commentary-38/