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 -11%, -12%, and -13%, respectively. There were no significant industry developments in the past week. Surging Sales in Canada Canada recorded $2.6B in cannabis sales in 2020, up 120% YoY. Much of the increased sales is attributed to more retail stores opening up across the country (see the retail store section for details). However, the pandemic also contributed to increased consumption in the year. As reported by Marijuana Business Daily, about 34% of cannabis users increased consumption during the pandemic for the following reasons:
Canadian cannabis stocks are trading at a significant premium over its U.S. based counterparts. With federal legalization in the U.S., we expect this trend to change:
Our research indicates significant short positions on some of the major Canadian stocks (see table below). From what we have seen on the retail trading pattern on GME, AMC etc., we think large short positions have the potential to draw retail investor’s attention.
Valuation of Select Canadian LPs
The following chart shows the average Enterprise Value to Revenue (“EV/R”) of the Canadian cannabis companies we track. The average EV/R, as of March 5, 2021, was 19.7x – a WoW decrease from 24.4x. The average EV/R, from October 7, 2019 to March 5, 2021, was 13.4x.
The average retail price per gram remained the same WoW at $11.29. The chart below shows Canadian retail dried cannabis flower pricing since we initiated price coverage.
Canadian Retail Cannabis Stores As of March 8, 2021, there are 1,654 retail cannabis stores, a WoW increase of 11 stores across Canada, of which Alberta had 7, and Ontario had 4.