The Canadian cannabis stocks we’ve identified have market caps between $200M and $1B and are trading at an EV/EBITDA discount relative to their peers
SmallCapPower | August 1, 2019: EV/EBITDA is a ratio that compares a company’s Enterprise Value to its EBITDA, or its Earnings Before Interest, Taxes, Depreciation, and Amortization. The EV/EBITDA ratio is commonly used a valuation metric to compare the relative value of different businesses. Today, we will be focusing on Canadian cannabis stocks with a market cap between $200M and $1B that are trading at a discount on a basis of their EV/EBITDA. For reference, from our sample size of 17 intermediate Canadian cannabis companies, the median EV/EBITDA is 8.1x.
*Share prices as at close Monday, July 29, 2019, data obtained from S&P Capital IQ
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The Green Organic Dutchman Holdings Ltd. (TSX:TGOD) – $2.95
Cannabis
Green Organic Dutchman Holdings is a Canada-based cannabis producer with operations spanning from Ontario to Quebec. TGOD has already received the ACMPR cultivation and sales license but its two facilities are currently under construction. The Company aims to be the lowest-cost producer in Canada by accessing the lowest power rates within the provinces in which it operates. The combined production capacity of the two fully-funded facilities totals 1,643,600 sq. ft. and is expected to yield 219,000 kg of cannabis flower annually. TGOD also has organic hemp CBD oil operations in Canada, and through its wholly-owned subsidiary, HemPoland, distributes premium hemp CBD oil in the EU. The Company announced on April 26, that HemPoland received an Organic Certification, which sets the foundation for its CBD products to be offered throughout Europe. Additionally, on June 27, 2019, TGOD announced that its Valleyfield, QC facility received its organic certification from Pro-Cert Organic Systems Ltd, a certifier of organic, gluten-free, and grass-fed products in North America.
- Market Cap: $812.6M
- YTD Return: 19.9%
- 90 Day Average Trading Volume: 1,480,000
- 2020 EV/EBITDA: 7.6x
Auxly Cannabis Group Inc. (TSXV:XLY) – $0.84
Cannabis
Auxly Cannabis Group is a vertically-integrated cannabis company with diverse international operations. Initially, the Company was set up as an investment company, called Cannabis Wheaton Income Corp., which sought to finance cannabis producers across Canada in exchange for streaming agreements. Over the past two years, Auxly has progressively developed its strategy from a streaming/royalty business model to a vertically-integrated cannabis business. The Company has an international footprint along with assets and operations throughout the cannabis value chain, which include production, extraction, processing, development, and retail. On July 25, 2019, Auxly Cannabis Group announced that Imperial Brands PLC will invest ~$123M in Auxly by way of a convertible debenture and grant Auxly global licenses to Imperial Brands’ vaping technology. This partnership should accelerate Auxly’s business plan of focusing on the development of science-backed and innovative derivative products.
- Market Cap: $509.6M
- YTD Return: -7.7%
- 90 Day Average Trading Volume: 740,000
- 2020 EV/EBITDA: 6.6x
Valens GroWorks Corp. (TSXV: VGW) – $3.80
Cannabis
Valens GroWorks is a pure-play cannabis extraction company with 425,000 kg of extraction capacity. Valens has signed extraction agreements with 6 of the Top 10 licensed cultivators, including: The Green Organic Dutchman, Organigram, Tilray, Canopy Growth, HEXO Corp, and Harvest One. Valens also has a strategic partnership with ThermoFisher Scientific, one of the world’s leading manufacturers of lab equipment, in addition to an ISO 17025 labs accreditation, which allows the Company to conduct standardized testing for over 400 different metals, pesticides, terpenes, residual solvents, microbials, and cannabinoid profiles.
- Market Cap: $465.1M
- YTD Return: 151.7%
- 90 Day Average Trading Volume: 750,000
- 2020 EV/EBITDA: 5.4x
Zenabis Global Inc. (TSX:ZENA) – $1.48
Cannabis
Zenabis was formed in January 2019, after a reverse-takeover of Bevo Agro Inc by Sun Pharm Investments Ltd took place. Zenabis is a licensed cannabis cultivator of medical and recreational cannabis, and a propagator and cultivator of floral and vegetable products. Zenabis owns four facilities intended for the cultivation of cannabis: Zenabis Atholville, Zenabis Stellarton, Zenabis Delta, and Zenabis Langley. On July 22, Zenabis Global announced that it has entered into an agreement with Starseed Medicinal Inc, whereby Starseed will advance $10M to Zenabis in September in exchange for Zenabis supplying dried cannabis flower and trim.
- Market Cap: $300.9M
- YTD Return: 0%
- 90 Day Average Trading Volume: 590,000
- 2020 EV/EBITDA: 7.2x
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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