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 -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:

Reasons for Increased cannabis consumption during the pandemic in canada

Source: MBD

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:

Forward Price/Revenue of Cannabis Stocks: U.S. vs Canada

Source: WSJ

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.

Short Positions as Reported on March 1, 2021

Source: Factset

Valuation of Select Canadian LPs

Average EV/R (October 2019 – March 2021)

Source: S&P Capital IQ, FRC

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.

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Stores, FRC 

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 Dried Cannabis Flower Pricing

Source: Online Provincial Cannabis Stores, FRC

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.

Nationwide Store Count

Source: Provincial Websites, FRC

Store count by geographic region in Canada

Source: Provincial Websites, FRC

Weekly Cannabis Commentary: