Revisiting Valuation Multiples for Cannabis Companies

Recreational cannabis is close to being legalized in Canada, and producers are running at full bore to capture a piece of the market.

Adam Jones - Author

Nov. 20 2020, Updated 5:00 p.m. ET

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Cannabis companies

Recreational cannabis is just a few months away from being legalized in Canada, and producers (HMMJ) are running at full bore to capture a piece of the market. However, these companies aren’t just focusing on the recreational market. They are also taking the initiative to expand their footprint in countries outside Canada to capture the medical market. Let’s revisit the valuation multiples of the most active cannabis players.

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EV-to-sales multiple

We have added three more companies on a net basis toward the calculation of the median in the chart above to improve the quality of data since our last update.

On April 26, the overall peers’ median forward enterprise-value-to-sales multiple stood at 5.5x. This represented the continuation of a downward drift from the high of ~8.2x in March. The current overall peers’ median is close to the bottom reached in July 2017.

Looking at the median of only Canadian cannabis producers—including Canopy Growth (WEED), Aurora Cannabis (ACB), MedReleaf (MEDFF), Cronos (CRON), and others mentioned in the chart—we see a similar trend. The current level stands at 9.5x, which was significantly below the peak of 11.1x in March. While this median remains below the resistance level of ~12.3x, which is depicted by the dashed line, it’s far from the 6.0x recorded in July 2017.

Series overview

In this series, we’ll also discuss the median forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] for cannabis producers. In addition, we’ll compare the current multiples for individual companies with the median.


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