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How Do Cannabis Stocks’ Valuations Stack Up in May?

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Earnings releases

Cannabis companies such as Tilray (TLRY), Aurora Cannabis (ACB), and CannTrust (CTST) reported their earnings last week, which gave us fresh insight into the cannabis sector. While the overall cannabis sector remained flat after the earnings releases, the returns for this sector have held up pretty well.

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Cannabis sector returns

The overall sector returns as represented by the ETFs in the above chart show that investors still had healthy returns despite weakness in March and April.

For example, the Horizons Marijuana Life Sciences ETF (HMMJ) is up nearly 40% YTD as of May 20, while the ETFMG Alternative Harvest ETF (MJ) has also returned a healthy 35% over the same period. The Horizons Emerging Marijuana Growers Index ETF (HMJR) has also delivered a return of 29%. The S&P 500 Index and the TSX 300 Composite Index returned 14% and 15%, respectively.

In the above chart, note that most of the gains in the sector came in January when the sector experienced a steep rebound after the market sentiment was at a low in December 2018, which was the case with most industries. However, the cannabis sector, being more volatile than the broader market, experienced a larger move, outperforming the market.

Valuation

With that said, valuations form a key basis for making investment decisions. Investors should closely track valuations, as they change often, especially after major events such as earnings releases.

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