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 2%, -8%, and -12%, respectively. This week, HEXO Corp. (TSX: XESO) announced that it will acquire Zenabis (TSX: ZENA) for $235M, to gain exposure to Europe’s cannabis market. This acquisition reflected an EV/R multiple of 2.6x, much lower than the industry median of 13x of large players. This acquisition is in line with our previously stated outlook of 2021 being a year of consolidation in the cannabis sector. 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 February 12, 2021, was 28.7x – a WoW increase from 27.8x. The average EV/R, from October 7, 2019 to February 12, 2021, was 13.0x.
The average retail price per gram decreased week-over-week from $11.29 to $11.27. The below chart shows Canadian retail dried cannabis flower pricing since we initiated price coverage.
Canadian Retail Cannabis Stores As of February 16, 2021, there are 1,557 retail cannabis stores, a week-over-week increase of ten stores across Canada, of which, Ontario had three, Alberta had six, and B.C. had one.