uploads///Forward EV to Sales Multiple for Cannabis Producers

How Cannabis Stocks’ Enterprise-Value-to-Sales Multiples Stack Up


Sep. 20 2018, Published 8:03 a.m. ET

Comparing cannabis companies

In the earlier part of this series, we looked at cannabis companies’ median EV-to-sales (enterprise value-to-sales) multiple, which stood at 12.7x as of September 19. The median is based on the results of nine cannabis companies.

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Tilray is the outlier

HEXO’s (HEXO) valuation multiple was right at the median value of 12.7x. The four companies above the median include Tilray (TLRY) at 130x, Aurora Cannabis (ACB) at 22.7x, Cronos Group (CRON) at 20.6x, and Canopy Growth (WEED) at 14.9x. Among these companies, Tilray was a clear outlier.

The four companies trading below the median include Aphria (APHQF) at 7.2x, Organigram (OGRMF) at 7.1x, Supreme Cannabis (SPRWF) (FIRE) at 9.7x, and CannTrust (TRST) at 6.0x.

The law of one price

Investors should look at valuation multiples before investing in a company to analyze their decision against the law of one price. The law of one price in the context of valuation loosely states that similar assets should trade at similar prices. While we acknowledge that these cannabis companies are not perfectly similar, the valuation multiples beg the question as to whether a company such as Tilray should be trading at nine times its second-biggest peer, Canopy Growth.

In the next part, we’ll continue our discussion with yet another valuation multiple, the EV-to-EBITDA (enterprise value-to-earnings before interest, tax, depreciation, and amortization) multiple.


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