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 1%, 4%, and 1%, respectively.
Last week, Aphria (TSX: APHA) announced that it will be acquiring Tilray (NASDAQ: TLRY) for US$3.9B. The combined entity will become the largest company in the sector by revenue.
We expect to see consolidation in the space, which will result in improved margins from synergies. We believe that larger companies will be targeting well-run small/mid cap companies in the space.
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 18, 2020, was 15.3x – a WoW decrease from 15.6x. The average EV/R, from October 7, 2019, to December 18, 2020, is 11.9x.
The average retail price per gram declined week-over-week to $11.01 from $11.03. The below chart shows Canadian retail dried cannabis flower pricing since we began price coverage.
Canadian Retail Cannabis Stores
As of December 21, 2020, there are 1,373 retail cannabis stores, a week-over-week increase of 28 stores across Canada, including two in B.C., four in Alberta, and 22 in Ontario. We expect Ontario’s store count to continue to grow, driven by the recent mandate of the Alcohol and Gaming Commission of Ontario (AGCO) to approve more Retail Store Authorizations (RSA).