The Canadian cannabis stocks we’ve discovered have kept their cost of capital low and may present a lower-risk opportunity
SmallCapPower | August 10, 2018: Weighted Average Cost of Capital (WACC) can act as a proxy for the total risk of many companies. As a measure that incorporates the required return for investors on a company’s securities, weighted by the proportion of debt and equity in its capital structure, it can also be a good measure of a company’s ability to raise expansion capital at a reasonable price. In the growing cannabis industry, many companies have been raising equity capital with significant risk attached. However, we have recently begun to see lenders becoming interested in the space, with several high-profile debt raises in recent weeks. Our list today includes Canadian cannabis stocks with low costs of capital. With the industry average at nearly 20%, these companies may be in a strong position to take on debt for expansion and leverage or issue new shares.
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CannaRoyalty Corp. (CSE:CRZ, OTC:CNNRF) – $4.72
Cannabis
CannaRoyalty Corp is a Canada-based investor within the legal cannabis industry in the United States and Canada. The Company acts as a venture capital and management consulting platform that helps cannabis companies reach their full potential. It provides upfront equity and debt capital to licensed cannabis businesses and provides an investment in the form of a secured convertible debt where a royalty or direct equity interest is not ideal. The Company’s investments target prospects with promising R&D or IP, brand development and distribution/infrastructure.
- Market Cap: $253.0 Million
- Weighted Average Cost of Capital: 9.6%
- WACC Equity Risk Premium: 5.1%
- 2 Year Weekly Beta: 1.3
Green Thumb Industries Inc. (CSE:GTII, OTCQX:GTBIF) – $9.40
Cannabis
Green Thumb Industries is a cannabis cultivator, dispensary operator and consumer packaged goods producer. The Company’s cannabis products include flower, concentrates, edibles and topicals. It also owns and operates a chain of 50 retail cannabis stores called RISE dispensaries. Green Thumb operates science-driven industrial cultivation at seven manufacturing facilities.
- Market Cap: $174.9 Million
- Weighted Average Cost of Capital: 9.8%
- WACC Equity Risk Premium: 5.2%
- 2 Year Weekly Beta: -0.3
Golden Leaf Holdings Ltd. (CSE:GLH) – $0.23
Cannabis
Golden Leaf is a vertically-integrated “seed-to-sale” cannabis company. It produces dried flower, concentrates, and infused cannabis products. The Company considers its distribution capabilities to be its core differentiator, focusing on dispensaries, e-commerce, and home delivery. Golden Leaf operates 10,425 sq. ft. of growing space with planned expansion to begin in 2019.
- Market Cap: $127.7 Million
- Weighted Average Cost of Capital: 10.8%
- WACC Equity Risk Premium: 5.1%
- 2 Year Weekly Beta: 1.2
Invictus MD Strategies Corp. (TSXV:GENE, OTC:IVITF) – $1.42
Cannabis
Invictus MD Strategies is a Canada-based company licensed to produce medical cannabis under the ACMPR. As of 2018, Invictus estimates its production capacity to be 27,000 kg/year. The Company has outlined plans to reach 98,000 kg/year capacity by the end of 2019, following the expansion of its facility to 825,000 square feet. KISS front man, Gene Simmons, is involved with Invictus as its Chief Evangelist Officer.
- Market Cap: $126.6 Million
- Weighted Average Cost of Capital: 11.1%
- WACC Equity Risk Premium: 5.1%
- 2 Year Weekly Beta: 2.5
Hydropothecary Corp. (TSX:HEXO, OTC:HYYDF) – $4.62
Cannabis
Hydropothecary is a Canadian cannabis producer, operating a 50,000 sq. ft. grow facility in Quebec. The Company differentiates itself through its commitment to natural growth techniques and a focus on customer service. Current operations produce 3,600 kg of cannabis per year. In October 2017, construction began on a new 250,000 sq. ft. facility, anticipated to be operational by the end of summer 2018. A second greenhouse construction project is expected to add an additional 1M sq. ft., scheduled to be completed by December 2018. With both new greenhouses operational, the Company expects to be able produce 108,000 kg of cannabis per year.
- Market Cap: $890.2 Million
- Weighted Average Cost of Capital: 13.3%
- WACC Equity Risk Premium: 5.1%
- 2 Year Weekly Beta: 2.0
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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