EBITDA (earnings before interest, tax, depreciation, and amortization), a measure of core earnings for a company, has been in the red for most cannabis companies, as companies continue to invest in future growth while taking a charge in the current year. The below graph takes a look at forward EBITDA estimates and not historical estimates, which have largely been negative for the cannabis companies.
The median multiple
The median forward EV-to-EBITDA multiple for the cannabis sector stood at 18.5x, which has fallen from ~20x in the previous month. The level at which the sector’s valuations were trading remained in the lower bound, hovering between 20x and 30x, which has also been the level at which the cannabis stocks have bottomed in the past.
Included in the median are stocks such as HEXO (HEXO), CannTrust (CTST), Aphria (APHA), Aurora Cannabis (ACB), and others. These stocks were trading at forward multiples of 24.7x, 17.7x, 18.5x, and 73.7x, respectively.
Aurora Cannabis recently reported its earnings and delivered top-line growth but missed earnings expectations. This scenario has pretty much been the trend with the players in the cannabis sector with so much uncertainty around the supply and demand dynamics within the industry.