Weekly Cannabis Commentary
Author: Sid Rajeev, Iftekhar Mahmud
Cannabis Industry Performance
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 returns of -5%, -5%, and -6%, respectively. Last week, Canopy (TSX: WEED) announced that it will completely move out of outdoor cultivation in order to lower production and improve margins. As larger players like Canopy and Aurora (TSX: ACB) are cutting production, we believe the industry will move towards a more balanced supply-demand level in 2021.
Valuation of Select Canadian LPs
The following chart shows the average Enterprise Value to Revenue (“EV/R”) ratio of the Canadian cannabis companies we track.
The average EV/R, as of December 11, 2020, was 15.6x – a WoW decrease from 17.2x. The average EV/R, from October 7, 2019 to December 11, 2020, was 11.83x.
Canadian Retail Cannabis Pricing
The average retail price per gram remained the same week-over-week at $11.03. The below chart shows Canadian retail dried cannabis flower pricing since we began price coverage.
Canadian Retail Cannabis Stores
As of December 14, 2020, there are 1,345 retail cannabis stores, a week-over-week increase of 45 stores across Canada, including 17 in B.C., and 28 in Ontario.
Significant Increase in Retail Stores in Ontario
Last week, Ontario announced that Retail Store Authorizations (RSA) issued per month will be doubled again from 40 to 80. The Alcohol and Gaming Commission of Ontario (AGCO) currently has 1,100 RSA applications that have not been processed. To date, roughly 305 RSAs have been issued. Therefore, with the government’s decision to increase processing rates, we expect Ontario to report stronger growth in stores in the coming months. We maintain our projection that there is room for 2,200 more retail cannabis stores in Canada, with at least 50% of those expected in Ontario, the biggest market in the country. Since we started tracking store data in February 2020, Ontario’s store count has increased 706% vs the nation-wide increase of 71%.