Weekly Cannabis Commentary

Author: Sid Rajeev, Iftekhar Mahmud

Cannabis Industry Performance 

Cannabis Industry Performance

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 -1%, -3%, and -4%, respectively. There were no noteworthy industry developments last week.

While there is growing optimism in the U.S. market for potential federal legalization, the Canadian industry has been impacted by oversupply challenges (see chart below). Also, the latest retail cannabis sales data showed a 3.2% MoM dip in November. This is the first MoM decline since April. This data was recently published, and we are trying to pinpoint the exact reason for the decline. Sources indicate that this drop might be because of tighter restrictions in Ontario and Quebec. With inventories piling up, we expect smaller producers to face challenges. Therefore, sector-wide consolidation is highly likely this year.

Dried Cannabis Inventory in Canada

Source: Marijuana Business Daily

Canadian Cannabis Retail Sales ($B)

Source: FRC / Statscan

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

January 15, 2021 and January 22, 2021

Source: S&P Capital IQ, FRC

 The average EV/R, as of January 22, 2021, was 22.6x – a WoW decrease from 23.5x. The average EV/R, from October 7, 2019 to January 15, 2021, was 12.4x.

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Stores, FRC

The average retail price per gram increased week-over-week from $11.01 to $11.03. The below chart shows Canadian retail dried cannabis flower pricing since we initiated price coverage.

Canadian Retail Cannabis Stores

As of January 25, 2021, there are 1,494 retail cannabis stores, a week-over-week increase of 40 stores across Canada, including 35 in Ontario, three in Alberta, and two in B.C. As noted earlier, we continue to see Ontario’s store growth significantly outpace other provinces due to the recent mandate of the Alcohol and Gaming Commission of Ontario (AGCO) to increase retail store authorizations.

Nationwide Store Count

Source: Provincial Websites, FRC

Source: Provincial Websites, FRC

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