The Canadian cannabis stocks we’ve discovered have outperformed industry benchmarks HMJR and MJ and are trading at a significant discount
SmallCapPower | May 2, 2019: Today we have identified four Canadian cannabis stocks performing well above industry benchmarks Horizons Emerging Marijuana Growers (HMJR) and ETFMG Alternative Harvest ETF (MJ) in terms of year-to-date returns. While it has been a good year so far for cannabis companies, year-to-date, our four stocks have significantly outperformed these cannabis ETF benchmarks, increasing an average of 205.75%, compared to the average benchmark, which has increased 54.5%. In terms of average 2020E consensus multiples, our picks trade at 1.88x sales and 8.5x EBITDA, a substantial discount to peers, which trade at 7.9x sales and 29.9x EBITDA (Canadian industry mean).
*Share prices as at close April 30, 2019, data obtained from S&P Capital IQ
Cannex Capital Holdings Inc. (CSE:CNNX) – $2.16
On April 26, 2019, Cannex Capital Holdings announced that the securityholders of Cannex overwhelmingly voted in favour of the business combination with 4Front Holdings LLC (the acquisition was announced on February 27, 2019). 4Front is a vertically-integrated, multi-state operator (MSO). The transaction is forecasted to create a strong operator with expertise across the cannabis value chain, which includes cultivation, manufacturing, workflow, packaging, distribution, and retail. 4Front is led by an experienced team with longstanding industry credibility and strategic M&A capabilities.
- Market Cap: $343.5 Million
- YTD Return: +107.8%
- 2020 EBITDA Multiple Estimate: 5.5x
- 2020 Revenue Multiple Estimate: 0.9x
Village Farms International (TSX:VFF) – $16.36
Village Farms International is a vertically-integrated greenhouse grower based in Canada. Village Farms focuses on farming products in a soil-free environment enclosed by glass using advanced technology to regulate the atmosphere for the plants. Currently, Village Farms has 9M sq. ft of greenhouse space in British Columbia and Texas. After entering the cannabis market in 2017, the Company increased its revenue by 10% to $40.6 million year over year. On April 18, the Company completed a $20M bought deal offering of 1M common shares. Net proceeds from the deal are expected to be used towards expanding working capital.
- Market Cap: $789.7 Million
- YTD Return: +248.0%
- 2020 EBITDA Estimate Multiple: 9.6x
- 2020 Revenue Estimate Multiple: 2.8x
MediPharm Labs Corp. (TSXV:LABS) – $5.23
MediPharm Labs focuses on a downstream extraction methodology, distillation, and cannabinoid isolation & purification. MediPharm runs a 70,000 sq ft operation with cGMP and ISO-rated standard laboratory clean rooms in Barrie, Ontario. MediPharm’s current processing capacity is 150,000 kg of biomass per year. On April 1, 2019, MediPharm entered a purchase agreement for 5,000 kg of dried cannabis supply. This strategic procurement will be beneficial to the Company in setting them up to meet the growing demands in Canada. To take advantage of the legalization of cannabis in Canada, the Company also announced on April 1 the launch of a white-label solutions platform that is expected provide customers with formulation, processing, packaging, and distribution services.
- Market Cap: $621.2 Million
- YTD Return: +190.0%
- 2020 EBITDA Estimate Multiple: 10.4x
- 2020 Revenue Estimate Multiple: 3.0x
Nextleaf Solutions Ltd. (CSE:OILS) – $0.64
Nextleaf Solutions is a Canadian extraction technology company that has developed a portfolio of issued and pending patents pertaining to the Company’s unique, industrial-scale process of producing purified cannabinoid distillate, a tasteless, odourless cannabis concentrate best suited for infusing premium value-added products. The Company currently has an issued U.S. patent on the entire end-to-end process (from biomass preparation to molecular distillation), and to our knowledge, is currently the only publicly-traded cannabis company to have a cannabis-specific extraction patent granted by the U.S. Patent Agency. On April 15, 2019, Nextleaf Solutions announced a private placement at $0.40 per unit for a maximum of $2M. On April 22, 2019, Nextleaf announced that due to high initial demand, the Company will be increasing the non-brokered private placement financing amount up to $4M. Nextleaf management, along with other insiders, plan to subscribe for between $500,000 and $1,000,000 of the financing.
- Market Cap: $59.5 Million
- Year-to-Date Returns: +276.5%
- 2020 EBITDA Multiple Estimate: N/A
- 2020 Revenue Multiple Estimate: 0.8x
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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