The Canadian cannabis stocks we’ve dug up have an EV/sales ratio that is lower than its peers
SmallCapPower | July 17, 2019: EV/sales is ratio that is used by investors to help value companies by comparing the enterprise value of the company to its annual sales. This provides investors with a quantifiable metric that shows how much it will cost to purchase a company’s sales. A lower EV/sales multiple could indicate that the Company is undervalued. Today we have weeded out four Canadian cannabis stocks that are considered undervalued on an EV/sales basis. For reference, the stocks were chosen from a list of 113 Canadian cannabis stocks that had an average EV/sales ratio of 20.3x in 2019E and 5.9x in 2020E.
*Share prices as at close July 15, 2019, data obtained from S&P Capital IQ
Delta 9 Cannabis Inc. (TSXV:NINE) – $1.03
Delta 9 is a licensed producer of medical cannabis operating an 80,000 sq. ft production facility in Winnipeg, Manitoba. Currently, the Company has a capacity of 4,200 kg/year but has fully-funded expansion plans to grow to 16,700 kg/year in 2019E. The Company utilizes a proprietary cannabis production methodology that is based on a modular, scalable and stackable production unit called Grow Pods. Additionally, the Company owns and operates a chain of retail stores under the Delta 9 Cannabis Store brand. On May 22, 2019, the Company received Health Canada approval to place 48 new Grow Pods from its Phase 2 expansion into production. The Company also received an export permit from Health Canada on May 8, 2019, which allows it to sell starting material to authorized cannabis license holders in Australia and Tasmania. As well, this permit will allow Delta to complete orders for rooted cannabis plants for international sale.
- Market Cap: $90.3 Million
- YTD Return: -17%
- 30-Day Average Daily Volume (1,000s): 97
- EV/Sales 2019E: 1.5x
- EV/Sales 2020E: 1.0x
Biome Grow Inc. (CSE:BIO) – $0.42
Biome Grow is a vertically integrated cannabis company. The Company operates three cultivation facilities: 1) Highland Grow, a fully licensed facility in Antigonish Nova Scotia that is actively producing in 6,500 sq.ft with an additional 10,000 sq.ft under construction. The Company has the option to build out the facility to 62,500 sq.ft. 2) Great Lakes Cannabis Co, based in Norwich Ontario, which has 12,000 sq.ft in the final stages of construction with room for material expansion. 3) Back Home, a state of the art cultivation facility in Barachois Brook, Newfoundland which currently has 18,000 sq.ft in upgrade mode and plans to expand up to 168,00 square feet in the future. In addition to its cultivation operations, Biome is actively distributing for other LPs, leveraging its end market penetration. On the retail side, the Company has five licenses in Newfoundland & Labrador, two of which are expected to be opened in 2019E with the rest potentially opening in 2020E. The Company also has a five-year exclusive supply agreement with CBD Acres to purchase 20,000 kg of CBD concentrate annually at competitive prices. This supply will be used to address market opportunities both domestically and, as regulations progress, internationally On May 29, 2019, the Company announced Q1/19 financial results which showed revenue of $341K derived from its first commercial harvest of cannabis from its Nova Scotia cultivation and distribution facility during this quarter.
- Market Cap: $45.8 Million
- YTD Return: -39%
- 30-Day Average Daily Volume (1,000s): 51
- EV/Sales 2019E: 2.9x
- EV/Sales 2020E: 1.5x
WeedMD Inc. (TSXV:WMD) – $1.53
WeedMD is a producer and distributor of cannabis products for both medical and recreational markets. Currently, the Company owns and operates two facilities: 1) a 158 acre property with over 610,000 sq. ft built at Strathroy, Ontario; and 2) a 26,000 sq. ft extraction and processing facility in Aylmer, Ontario. In total, WeedMD has 136,000 sq. ft. of licensed production space with 150,000 kg of fully-funded capacity. The Company is expecting to expand its footprint to more than 550,000 sq. ft of indoor and greenhouse production space by the end of 2019. Additionally, on June 17, 2019, the Company finished planting its 27-acre outdoor grow that it is expected to harvest in October 2019. The Company utilizes a multi-channel distribution strategy, which involves selling to medical patients, strategic relationships with the seniors’ market, supply agreements with Shoppers Drug Mart and six provincial distribution agencies that sell its recreational brand Color Cannabis ™.
- Market Cap: $175.0 Million
- YTD Return: 15%
- 30-Day Average Daily Volume (1,000s): 433
- EV/Sales 2019E: 4.3x
- EV/Sales 2020E: 1.0x
Nextleaf Solutions Ltd. (CSE:OILS) – $0.43
Nextleaf Solutions is an extraction technology company that has created a portfolio of issued and pending patents that relate to the Company’s industrial-scale process of generating purified cannabinoid distillate, which is a cannabis concentrate that is used in value-added products. The Company has 3 issued and 24 patent pending patents. Once cannabis concentrates become legal in Canada on October 17, 2019, the Company plans to start commercializing its intellectual property portfolio with B2B processing services to licensed cultivators. On June 24, 2019, the Company announced that it entered into an agreement to acquire a U.S. patent-pending hydrocarbon extraction process and award-winning formulation for shatter, a cannabis concentrate.
- Market Cap: $45.8 Million
- YTD Return: 0%
- 30-Day Average Daily Volume (1,000s): 839
- EV/Sales 2019E: 6.5x
- EV/Sales 2020E: 0.7x
Ubika Research/SmallCapPower has received compensation from Nextleaf Solutions to provide analyst research coverage. For full disclosure please visit here >>
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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