Weekly Cannabis Commentary
Author: Sid Rajeev, Iftekhar Mahmud
Cannabis Industry Performance
Over the past week, British American Tobacco (LSE: BATS) said it will acquire a 20% stake in Organigram (NASDAQ: OGI) for £126M (US$176M) as it looks to expand its portfolio beyond nicotine. Curaleaf (OTC: CURLF) announced it will be acquiring Emmac Life Sciences Ltd. (Europe’s largest vertically integrated cannabis company, according to Curaleaf) for US$285M, implying an EV/R of 6.2x. This is lower than the U.S and Canadian sector averages. On average, the Canadian companies generated a higher return compared to the U.S. peers – we believe the main catalyst of this is the BATS acquisition news.
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 March 12, 2021, was 22.9x – a WoW increase from 19.7x. The average EV/R, from October 7, 2019 to March 12, 2021, was 13.5x.
We reported last week that U.S. based cannabis companies are trading at a discount to large Canadian LPs. A deeper analysis this week indicated that the largest four Canadian cannabis companies are trading at an 88% premium to its U.S. based peer group. We expect this imbalance to be corrected as the U.S. cannabis industry moves closer to federal legalization. Therefore, we have a more favorable outlook on U.S. based growers. Going forward, we will track both peer group multiples on a chart to observe the differences in valuation between the two markets.
Valuation of Select U.S. Marijuana Producers
The average retail price per gram remained the same week-over-week at $11.29. The below chart shows Canadian retail dried cannabis flower pricing since we initiated price coverage.
Canadian Retail Cannabis Stores
As of March 15, 2021, there are 1,671 retail cannabis stores, a week-over-week increase of 17 stores across Canada, of which, Alberta had 4 and Ontario had 13.