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 -9%, -7%, and -9%, respectively. Last week, Cronos Group (NASDAQ: CRON) reported its Q4-2020 financials, which missed consensus earnings estimates (actual: -$0.31 vs estimate: -$0.07), despite 103% YoY revenue growth. CRON incurred an inventory write-down of $26M, which was attributed to cannabis price compression in the Canadian market.
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 26, 2021, was 24.4x – a WoW decrease from 29.0x. The average EV/R, from October 7, 2019 to February 26, 2021, was 13.3x.
The average retail price per gram increased week-over-week from $11.26 to $11.29. The below chart shows Canadian retail dried cannabis flower pricing since we initiated price coverage.
Canadian Retail Cannabis Stores
As of March 1, 2021, there are 1,643 retail cannabis stores, a week-over-week increase of 42 stores across Canada, of which, Ontario had 39. As noted before, we expect Ontario’s store growth to significantly outpace other provinces.