Cannabis sector multiples
Now, let’s look at another valuation multiple for the same 12 cannabis players: the forward EV-to-EBITDA (enterprise value-to-EBITDA) multiple.
Where are they trading?
The peer median forward EV-to-EBITDA multiple of the 12 cannabis stocks under review was 24x on March 8. Just three months ago, this valuation reached a low of 10.2x, which meant that if you’d invested in an equally weighted portfolio consisting of these 12 stocks in December, you would have paid ~10x per unit of forward EBITDA, which would have appreciated to 24x in the current month.
Bear in mind that we are oversimplifying when we say this because EV also includes debt. In general, though, this understanding holds when we consider valuation multiples in hopes of making investment decisions.
As we can see in the chart above, the current EV-to-EBITDA level appears to be trading at a discount to the historical average. The historical average median peer multiple (HMMJ) averaged 32.7x in the past two years. Therefore, the current levels still appear cheap compared to the past.