Weekly Cannabis Commentary
Author: Sid Rajeev, Iftekhar Mahmud
Cannabis Industry Performance
Over the past week, U.S. cannabis companies outperformed Canadians, which we believe was largely due to earnings announced by below mentioned companies, and Canadian industry sales data.
Last week, HEXO Corp. (TSX: HEXO) announced its Q2-2021 (ended January 31, 2021) results, with $32.8M in revenue (up 94% YoY), and EPS of -$0.17 (vs consensus estimate of -$0.05). Management stated that the company is currently looking for potential M&A opportunities. In the U.S., Green Thumb Industries Inc. (CSE: GTII) reported its 2020 financials, with revenue of $556.6M (up 157.2% YoY), and EPS $0.07 (vs consensus estimate of $0.04).
Statistics Canada released January 2021 cannabis sales data last week, which showed a 6% MoM decline. Sales declined in every province. We believe the decline in sales was due to seasonality from coming out of the holiday season.
Valuation of Select Canadian LPs
The following chart shows the average Enterprise Value to Revenue (“EV/R”) ratio of the Canadian and U.S. cannabis companies we track.
Average EV/R (October 2019 – March 2021)
As of March 19, 2021, the average EV/R for Canadian and U.S. cannabis companies were 22.0x and 13.8x, respectively. We note that the big four Canadian LPs are trading at a 96% premium (up from 88% last week) over their U.S. peers. We believe the current valuation discrepancy is due to the cannabis industry being federally illegal in the U.S., and anticipate the EV/R to converge as the U.S. approaches federal legalization.
Canadian Retail Cannabis Pricing
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 22, 2021, there are 1,707 retail cannabis stores, a week-over-week increase of 36 stores across Canada, of which, Ontario had 27 and Saskatchewan had nine.
Weekly Psychedelic Commentary
Psychedelic Industry Performance
Over the past week, PSYK generated a return of -7%. Numinus Wellness Inc. (TSXV: NUMI) announced the closing of a $40M bought deal financing at $1.25 per unit.