Weekly Cannabis Commentary

Author: Sid Rajeev, Iftekhar Mahmud

Cannabis Industry Performance

Cannabis Industry Performance Jan 8 , 2021

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 14%, 12%, and 15%, respectively. Democrats’ control of the Senate signals an easier path towards federal legalization of marijuana in the U.S.

Canopy (TSX: WEED) has already stated that the company is expediting its timeline for full entry into the U.S. market to 2021 from 2022. We expect other major Canadian LPs to follow this approach as well. In 2020, marijuana sales in the U.S. were approximately US$18B vs approximately US$2B in Canada.

Canadian Cannabis Sales up over 120% YoY in 2020

Since Cannabis legalization (October 2018) to date, Canadian retail sales have shown steady growth, despite the pandemic. In 2020, cannabis retail sales till October were $2B, up 73% from 2019 annual retail sales, with two months of data still to be reported. We estimate that full year 2020 sales will be up over 120%, even if sales stay at October levels for the remaining two months.

Retail Cannabis Sales in Canada ($M)

Source: Statistics Canada, FRC

We note that the number of Cannabis retail stores increased 206% YoY to 1,384 in December 2020. We believe there is room for at least 2,200 more retail stores in the country.

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 – January 2021)

Source: S&P Capital IQ, FRC

The average EV/R, as of January 8, 2021, was 18.2x – a WoW increase from 13.3x.

Source: S&P Capital IQ, FRC

 The average EV/R, as of January 8, 2021, was 18.2x – a WoW increase from 13.3x. The average EV/R, from October 7, 2019 to January 8, 2021, was 12.0x.

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Stores, FRC

The average retail price per gram increased week-over-week to $11.01 from $11. The below chart shows Canadian retail dried cannabis flower pricing since we initiated price coverage.

Canadian Retail Dried Cannabis Flower Pricing

Source: Online Provincial Cannabis Stores, FRC

Canadian Retail Cannabis Stores

As of January 11, 2021, there are 1,434 retail cannabis stores, a week-over-week increase of 47 stores across Canada. We are noticing some inconsistencies in the data presented on the provincial websites over the last couple of weeks. As per reported data, Manitoba showed an increase of 18 stores last week, which seems highly unlikely. We will continue to monitor this information, and expect revisions in the coming weeks.  

Nationwide Store Count

Canadian Retail Cannabis Stores

Source: Provincial Websites, FRC

Weekly Cannabis Commentary: