Weekly Cannabis Commentary
Author: Sid Rajeev, Iftekhar Mahmud
Over the past week, the U.S. and Canadian cannabis sectors generated negative returns due to a lack of any noteworthy industry developments, and a pull-back in equity markets.
The provincial government cannabis sellers of Ontario and Quebec recently announced strong net income forecasts for the next 12 months.
In 2020, retail cannabis sales in Canada were $2.6B (up 121% YoY), with $727.6M (up 155% YoY) in Ontario, and $495.7M (up 96% YoY) in Quebec.
Valuation of Select LPs
As of March 26, 2021, the average Enterprise Value to Revenue (EV/R) of Canadian and U.S. cannabis companies were 19.8x and 12.5x, respectively. We note that the Canadian big four LPs are trading at a 106% premium (up WoW from 96%) over their U.S. peers. We maintain that the current valuation discrepancy is due to the cannabis industry being federally illegal in the U.S., and anticipate the EV/R averages to converge with time.
The following chart shows the average EV/R of the companies we track in both sectors:
The average retail price per gram increased week-over-week, from $11.29 to $11.33. The chart below shows Canadian retail dried cannabis flower pricing since we initiated price coverage.
Canadian Retail Cannabis Stores
As of March 29, 2021, there are 1,742 retail cannabis stores, a week-over-week increase of 35 stores across Canada with the largest increases in B.C. (13), Alberta (7) and Manitoba (7).