OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
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Chart of the Week
Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Week ended 01/20/2023
Does This Picture Make Sense? U.S. vs Canadian EV/Revenue Multiples
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- The chart explores the EV / Next Twelve Month Revenue multiples for the largest U.S. MSOs compared to the most prominent Canadian LPs (at the beginning of the period).
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- The red line on the graph shows the aggregate enterprise value to consensus next twelve-month revenue multiples of the largest 10 Canadian LPs by market cap at the end of 2021. The group includes Tilray (TLRY: Nasdaq), Canopy Growth (CGP: Nasdaq), Cronos (CRON: CSE), Sundial (SNDL: Nasdaq), Organigram (OCI: CSE), Aurora (ACB: Nasdaq), Village Farms (VFF: CSE), HEXO (HEXO: Nasdaq), Fire & Flower (FAF: CSE), and High Tide (HITI: Nasdaq).
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- The blue line on the graph shows the aggregate enterprise value to consensus next twelve-month revenue multiples of the largest 11 U.S. MSOs by market cap at the end of 2021. The group includes Ascend (AAWH: OTC), AYR (AYR.A: CSE), Columbia Care (CCHW: NEO), Cresco (CL: CSE), Curaleaf (CURA: CSE), Green Thumb (GTII: CSE), 4Front (FFNT: CSE), Jushi (JUSHF: OTC), TerrAscend (TER: CSE), Trulieve (TRUL: CSE), and Verano (VRNO: CSE).
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- The green line on the graph is the US multiple divided by the Canadian Multiple to show the relative group valuations.
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- In early 2022, U.S. MSOs traded at 84% of the multiple of the Canadian LPs. In June, we commented in the Viridian Deal Tracker that the market had finally begun to price the two groups rationally as the much more profitable MSOs should trade at higher revenue multiples, even accounting for 280e.
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- In the last month, Canadian LPs have significantly outperformed the US MSOs and are trading at equal multiples. Several Canadians have had earnings beats. For example, Organigram (OGI: CSE) turned in $4.2M EBITDA for its recently announced November quarter relative to consensus estimates of $2.0M. Even more impressively, OGI showed positive cash flow from operations. Still, the Canadian group has negative projected EBITDA for the next twelve months, and the most profitable members of the group, Tilray and Organigram are only projected to have 12% and 10% EBITDA margins, respectively. We see very little sign of accelerating profitability for the group.
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- The trading multiples appear to be driven primarily by the greater liquidity from senior exchange listings. We recommend selling Canadian LPs and buying more profitable and better-valued U.S. MSOs.
