Weekly Cannabis Commentary

Author: Sid Rajeev, Iftekhar Mahmud

Cannabis Industry Performance

Source: FRC

Source: FRC

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.

Provincial Government Cannabis Net Income Estimates

Source: Provincial Websites, FRC

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.

Source: S&P Capital IQ, FRC

The following chart shows the average EV/R of the companies we track in both sectors:

Average EV/R (October 2019 - March 2021)

Source: S&P Capital IQ, FRC

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Stores, FRC

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 Dried Cannabis Flower Pricing

Source: Online Provincial Cannabis Stores, FRC

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).

Nationwide Store Count

Source: Provincial Websites, FRC

Weekly Cannabis Commentary:

Source: https://www.researchfrc.com/weekly-cannabis-commentary-76/