uploads///Forward EV to EBITDA Multiple for Cannabis Sector

Investors: An Important Trend before Investing in Cannabis

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Dec. 4 2020, Updated 10:53 a.m. ET

Recap

In Part 2, we discussed the EV-to-sales multiple. We were able to identify an upward trend, which could be a gauge for investors looking to trade cannabis stocks (HMLSF). Usually, investors look at more than one valuation multiple before making an investment decision.

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Multiples

The second valuation multiple that we’ll discuss is the EV-to-EBITDA multiple. We’ll discuss the multiple as a median for nine cannabis stocks including Canopy Growth (WEED), Aurora Cannabis (ACB), Cronos Group (CRON), Aphria (APHA) and others—as indicated in the footnote of the above chart.

As of February 22, the median EV-to-EBITDA valuation multiple for the nine stocks was 25.1x. In our previous update on February 8, the median multiple was 22.1x. In December, the median multiple reached a low of 10.8x when investors were on a selling spree.

Historical average

We looked at the historical average of the multiples since January 2017 and compared it with the current levels just like we did for the EV-to-sales multiple. The current forward EV-to-EBITDA multiple of 25.1x was trading at a discount to the historical average of 32.9x. There might be some room for upward momentum if the market thinks that a multiple of 32.9x is fair for the cannabis sector.

We only looked at the median EV-to-EBITDA multiple for the nine cannabis stocks. Next, we’ll discuss individual cannabis stocks.

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