The Canada-listed cannabis stocks we’ve identified have posted high goodwill to net asset ratios in their latest quarter
SmallCapPower | July 30, 2019: It’s easy to look at the cannabis industry from a bullish perspective as demand grows and cannabis companies continue to expand globally. Today we will be looking at metric that can demonstrate if a company could be overvalued: the goodwill to net asset ratio. This ratio compares the goodwill on a company’s balance sheet to a company’s total assets. Goodwill is not necessarily bad, as it represents the premium over the estimated market value of the assets acquired when buying another company. A company expecting to generate significant cash flow from an acquisition may record high amounts of goodwill as they expect the premium they pay on the investment to be offset with returns. However, a higher goodwill balance can also mean that a company overpaid for its acquisitions, which can result in asset write-offs. Therefore, if goodwill comprises a relatively high portion of a company’s assets, it could potentially mean the company is overvalued. Today we have discovered four Canada-listed cannabis stocks with some of the highest goodwill to net asset ratios in their latest quarter.
*Share prices as at close Friday, July 26, 2019, data obtained from S&P Capital IQ
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iAnthus Capital Holdings Inc. (CSE:IAN) – $3.65
Cannabis
iAnthus Capital is a vertically-integrated MSO with cultivation, processing, and retail operations in the U.S. According to the Company’s July investor presentation, IAN operates 23 dispensaries throughout 11 states, and owns a total of 68 retail licenses. In the U.S., there are more than 110 dispensaries with iAnthus-branded products, and over 1,000 stores with the Company’s CBD-branded products. Visit IAN’s corporate website for more information.
- Market Cap: $626.2M
- YTD Return: -37.6%
- 90 Day Average Trading Volume: 530,000
- Goodwill to Net Asset Ratio: 69.6%
Aurora Cannabis Inc. (TSX:ACB) – $8.44
Cannabis
Aurora Cannabis is a vertically-integrated and horizontally-diversified cannabis company based in Edmonton, Alberta, which currently has a funded capacity that exceeds 625,000 kg per year. The Company has sales operations in 25 countries across five continents. As of now, the Company has 18 strategic acquisitions, 15 global production facilities with 3 EU GMP certified, 40 clinical studies running or completed and over 77,000 medical patients served. On July 18, 2019, the Company announced that it was selected by the Italian government to be its public tender to supply medical cannabis in Italy. With the contract, Aurora will supply a minimum of 400kg of medical cannabis over the two-year contract. On July 15, 2019, Aurora announced that it received Health Canada licenses for outdoor cultivation in Quebec and British Columbia. Visit Aurora’s corporate website for more information.
- Market Cap: $8.6B
- YTD Return: 19%
- 90 Day Average Trading Volume: 4,660,000
- Goodwill to Net Asset Ratio: 57.2%
Chemesis International Inc. (CSE:CSI) – $1.25
Cannabis
Chemesis International is a vertically-integrated MSO with international operations in Puerto Rico and Colombia. The Company operates a variety of brands, which cater to a wide community of cannabis users, putting focus on quality and consistency. Chemesis has facilities in both Puerto Rico and California and is currently in the process of constructing a GMP-certified facility in Colombia. Chemesis’ Puerto Rico operations are licensed to operate 100,000 square feet of cultivation and 35,000 square feet of manufacturing floor space. On July 15, CSI announced a partnership with Happy Tea, a brand of CBD-infused sachets and shots. This partnership is expected to allow Happy Tea to expand its product offering and realize cost savings by leveraging Chemesis’ extraction, manufacturing, and retail distribution. Visit Chemesis International’s corporate website for more information.
- Market Cap: $116.8M
- YTD Return: 23.7%
- 90 Day Average Trading Volume: 180,000
- Goodwill to Net Asset Ratio: 52.9%
C21 Investments Inc. (CSE:CXXI) – $0.83
Cannabis
C21 Investments is a vertically-integrated cannabis company that cultivates, processes, and distributes quality cannabis and hemp-derived consumer products in the U.S. CXXI owns Silver State Relief and Silver State Cultivation, Phantom Farms, Swell Companies, Eco Firma Farms, and Pure Green in Nevada and Oregon. These brands produce and distribute a variety of THC and CBD products from cannabis flowers, pre-rolls, cannabis oil, vaporizer cartridges, and edibles. Visit C21 Investment’s website for more information.
- Market Cap: $53M
- YTD Return: 9.2%
- 90 Day Average Trading Volume: 180,000
- Goodwill to Net Asset Ratio: 45.3%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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