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When’s the Right Time to Jump into Cannabis Stocks?

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Valuations

Finding the right time to invest in the cannabis sector can be challenging. Investors often use valuation multiples to determine the ideal entry or exit points. There are challenges to understanding the valuation trend for this sector. We have aggregated the valuation multiples of key players in the cannabis sector (HMMJ) and have presented the data in the chart below.

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Enterprise-value-to-sales multiple

The above chart shows the forward enterprise-value-to-sales multiple. This metric uses the one-year forward analyst sales estimates for cannabis producers such as Canopy Growth (WEED) (CGC), Aurora Cannabis (ACBFF), MedReleaf (MEDFF), and others.

As of July 10, the forward enterprise-value-to-sales multiple for the Canadian cannabis sector, which is represented by the yellow line in the above chart, fell to 9.3x from 10.2x in the previous month around the same date. The forward multiple for the sector including US pharmaceutical companies with exposure to medical cannabis drugs, which are represented by the blue line in the chart, also declined to 6.7x from 7.4x during the same period.

This means that on average, a marginal investor was willing to pay a lower multiple of 9.3x per unit of the median forward sales for the sector compared to 10.2x per unit of forward sales about a month ago.

Next, we’ll look at the valuation multiples of individual companies.

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