Comparing valuations

Below, we’ll compare the valuation multiples for some of the stocks within the cannabis sector with their historical levels and the median of 12 peers. This comparison enables us to discover the level at which stocks may look attractive on a relative basis.

CTST, HEXO, IIPR, GTII: How Valuations Compare

The multiples

As the above chart shows, the forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) of the peer median stood at 18.5x on May 22, which was much lower than its historical average of 31.9x over the past two years.

This trend was also visible in most of the stocks in the above chart except for Innovative Industrial Properties (IIPR). IIPR was trading at 18.7x, which was at a premium to its historical average of 11.5x.

On the other hand, HEXO (HEXO) was trading at 24.7x, which was at a premium to the peer median. However, HEXO’s valuation multiple has moved lower from its historical average of 31x. CannTrust (CTST) was also trading at a discount to its historical average of 20.2x at 17.8x on May 22, while Supreme Cannabis (SPRWF) was trading at 11.9x, a deep discount to its historical average of 43.1x.

Overall, the valuation multiple of the cannabis sector has trended lower in the current month due to factors including earnings results and lackluster movement in other parts of the world, especially the US. Read Cannabis Stocks Fell despite Biden’s Support of Legalization.

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