Weekly Cannabis Commentary

Author: Sid Rajeev, Iftekhar Mahmud

Cannabis Industry Performance

Cannabis Industry Performance on December 11,2020

Source: TMX Money, FRC

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.

Average EV/R (October 2019 – December 2020)

Source: S&P Capital IQ, FRC

The average EV/R, as of December 11, 2020, was 15.6x

Source: S&P Capital IQ, FRC

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


Canadian Retail Cannabis Pricing for December 14,2020

Source: Online Provincial Cannabis Stores, FRC

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 Dried Cannabis Flower Pricing for December 07,2020

Source: Online Provincial Cannabis Stores, FRC

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.

Nationwide Store Count for December 14,2020

Source: Provincial Websites, FRC

Source: Provincial Websites, FRC

 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%.

Retail Stores in Ontario vs Nation-wide

Source: Provincial Websites, FRC

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