Weekly Cannabis Commentary

Author: Sid Rajeev, Iftekhar Mahmud

Last week, New York became the 17th state in the U.S. to legalize recreational cannabis. According to the New York Times, New York’s cannabis market is estimated to be US$4.6B, and projected to reach US$5.8B by 2027. NY is second to the largest cannabis market in the world (California). Despite this positive development, U.S. based cannabis stocks retreated last week due to a Chicago Tribune report alleging a federal probe into Green Thumb (OTC: GTBIF), regarding possible violations in securing state licenses in Illinois. The company has denied these allegations, and stated that it has not received any communication from federal agencies.

In a week of mixed performance in the Canadian sector, Canopy (TSX: WEED) announced that it acquired AV Cannabis Inc. (private company, transaction details undisclosed). Although we are not able to comment on the valuation, we believe this is an encouraging development in the sector on two fronts: 1) as we anticipated coming into the year, we are seeing more consolidations in the industry, such as Tilray (NASDAQ: TLRY) – Aphria (TSX: APHA), Hexo (TSX: HEXO) – Zenabis (TSX: ZENA), British American Tobacco (LSE: BATS) – Organigram Holdings Inc. (TSX: OGI), 2) we are observing more emphasis on cannabis 2.0 brand positioning – a trend that has picked up over the past few months (for example, Canopy’s /TSX: WEED Martha Stewart CBD product line launched in Q4-2020).

Valuation

As of April 1, 2021, the Canadian big four LPs are trading at a 119% premium (up WoW from 106%) over their U.S. peers. We think the higher premium can be directly attributed to GTBIF’s news.

Valuation Canadian Companies

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 – April 2021)

Source: S&P Capital IQ, FRC

Canadian Retail Cannabis Pricing

Source: Online Provincial Cannabis Stores, FRC

The average retail price per gram decreased week-over-week, from $11.33 to $11.32. 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 April 5, 2021, there are 1,798 retail cannabis stores, a week-over-week increase of 56 stores across Canada; the largest increase was in Ontario (38), B.C. (8), and Saskatchewan (7).

Nationwide Store Count

Source: Provincial Websites, FRC

Source: Provincial Websites, FRC

Weekly Psychedelic Commentary

Psychedelic Industry Performance

Psychedelic Industry Performance

Source: TMX Money, FRC

Over the past week, PSYK generated a return of 8%. MindMed (NEO: MMED) reported its year-end financials, showing $203M in cash to support its drug development efforts. The company is at pre-revenue stage, and spent $30.5M in operations in 2020.

Weekly Cannabis Commentary:

Source: https://www.researchfrc.com/weekly-cannabis-commentary-78