Cannabis stocks have taken a beating since our last comp table on June 10. The average US stock has declined 5%, while the average Canadian stock declined 9% since June 10.
The Canadian sales estimates also declined about 2%, while the US estimates actually increased very slightly for 2022.
As a result, the multiples have declined in the past 11 days by about 0.3-0.4X sales and 1.4-2.5X EBITDA for the US operators and 0.9X sales for the Canadian LPs.
This week saw a lot of market volatility surrounding the Fed meeting on June 17, but in comparison, the small cap Russell 2000 index also declined 3.1% through June 18, then rallied 2% on June 21 to close at -1% over the same period. Quarter to date, they have exhibited significant underperformance vs the broader market.
The US operators are now 32% off their February highs on average, and the Canadian operators are 49% off their highs.
Some of this decline is due to a lack of progress on Federal legalization vs the excitement in November-February – which the operators astutely used to raise over $2 billion in additional capital. Yet additional states continue to pass legalization, most recently with Connecticut completing the NY Tri-State area, leaving only New Hampshire and Rhode Island with medical-only in the North East.
For those with a decade long time frame, and trusting the 2022 estimates, the US operators are starting to look nominally cheap on EBITDA at 12.1X EBITDA on average. Some are trading near the financial crisis levels of 2.5X sales and 7.5X EBITDA that consumer/tech companies bottomed in past financial crises – yet there is currently no financial crises.
The ancillary companies declined only 1% as the 8% drop at Valens was offset by the rise in Weedmaps (WM Techology), which completed its merger with Silver Spike Capital to go public, with a ticker change to MAPS. The stock has shown significant intraday volatility since June 15, ranging from $17.35 to a high of $22.22 to close at $17.93 on June 22. Premium Members can read our assesstment of the stock here.
The question is what will turn the momentum? Second quarter earnings season will be here soon, so we’ll see if strong results slow the declines.