Weekly Cannabis Commentary
Author: Sid Rajeev, Iftekhar Mahmud
Cannabis Industry Performance
Last week, Aurora Cannabis Inc. (TSX: ACB) released its Q3 (three months ended March 31, 2021) results, with $55M in revenue, down 25% YoY, and $165M (EPS: – $0.85) in net losses, 18% higher loss YoY. Management cited lower demand from provincial distributors and retail channels as the reason for the revenue decline.
Today, HEXO Corp. (TSX: HEXO) announced its plans to acquire 48North Cannabis Corp. (TSXV: NRTH) in an all-share deal valued at approximately $50M. The implied EV/R acquisition multiple is 3x vs the sector average of 14x. HEXO was also able to acquire Zenabis (TSX: ZENA), earlier this year, for just 2.6x EV/R.
In the U.S., Curaleaf Holdings, Inc. (OTCQX: CURLF) announced an agreement to acquire Los Sueños Farms (a private outdoor grow company in Colorado) for US$67M. We were unable to get any information on the target’s revenue/earnings.
As of May 14, 2021, the Canadian big four LPs are trading at a 109% premium (up from 94% the previous week) over their U.S. peers. We were expecting the premium to decline due to Aurora’s poor results. We would not be surprised if premiums decline this week.
The following chart shows the average EV/R of the companies we track in both sectors:
The average retail price per gram decreased week-over-week, from $11.28 to $11.27. The chart below shows the Canadian retail dried cannabis flower pricing trend:
Canadian Retail Cannabis Stores
As of May 17, 2021, there are 1,995 retail cannabis stores, a week-over-week increase of 13 stores across Canada, with 11 in Ontario, and two in B.C.