The Canadian cannabis stocks we’ve picked out are trading at a low price to 2020E free cash flow relative to their peers
SmallCapPower | August 8, 2019: When it comes to business, cash is king. The ability to generate cash is critical if a company wants to pursue opportunities that enhance shareholder value. A good metric to measure a company’s ability to generate cash is price to free cash flow. This metric divides a company’s market capitalization by its free cash flow. A company with a low price to free cash flow ratio relative to its peers could be undervalued. Today we have sifted through and found some of the best free cash flow generating Canadian cannabis stocks using 2020E free cash flow. We took each stock’s market capitalization and divided it by its 2020E free cash flow. For reference, the average price to cash flow from our comps group was 13.9x.
*Share prices as at close Friday, August 2, 2019, data obtained from S&P Capital IQ
TILT Holdings Inc. (CSE: TILT) – $0.88
TILT Holdings is a vertically-integrated infrastructure and technology cannabis company. The Company provides software, infrastructure, financing and additional services to cannabis retailers. The Company is organized in two units: Software & Services and Consumer Devices & Packaged Goods, to deliver end-to-end services and customer solutions. On July 31, TILT announced a partnership with CMW Media, a creative and public relations agency specializing in cannabis, CBD health and wellness, and emerging markets.
- Market Cap: $317.1M
- YTD Return: -74.5%
- 90 Day Average Trading Volume: 820,000
- 2020E Free Cash Flow: $203.1M
- Price to Free Cash Flow: 1.6x
SLANG Worldwide Inc. (CSE: SLNG) – $1.22
SLANG focuses on acquiring and developing market-proven regional brands and developing new brands to help meet the changing needs of cannabis users globally. The Company sells products at more than 2,600 stores across Arizona, California, Colorado, Florida, Oregon, Maine, Massachusetts, Michigan, Nevada, New Mexico, Vermont, Canada, Puerto Rico and Jamaica. On July 22, SLANG announced that it will be entering the European Union, starting with Greece, through a partnership with Global Cannabis Corp.
- Market Cap: $275.3M
- YTD Return: -34.7%
- 90 Day Average Trading Volume: 490,000
- 2020E Free Cash Flow: $41.2M
- Price to Free Cash Flow: 6.7x
VIVO Cannabis Inc. (TSXV: VIVO) – $0.51
Formerly known as ABcann Global Corporation, VIVO Cannabis manufactures and distributes medical cannabis. The Company gained its production and sales license from Health Canada in April 2018. VIVO’s capacity estimates for 2019 include 1,500 kg of indoor cannabis with an additional 14,000 kg grown in greenhouse facilities. To increase supply and distribution, the Company entered into agreements relating to strategic equity investments in Canadian cannabis retailers National Access Cannabis Corp., Choom Holdings Inc, and Westleaf Cannabis Inc, all of which either have operations within Ontario or have plans on operating in Ontario. On August 6, VIVO announced that the Company’s wholly-owned subsidiary, ABcann Medicinals Inc, has been granted a Standard Cultivation license from Health Canada for its Kimmetts facility in Napanee, Ontario.
- Market Cap: $150.6M
- YTD Return: -31.6%
- 90 Day Average Trading Volume: 650,000
- 2020E Free Cash Flow: $15.7
- Price to Free Cash Flow: 9.6x
Cresco Labs Inc. (CSE: CL) – $9.87
Based in Chicago, Cresco Labs is a vertically-integrated cannabis cultivator, manufacturer, and retailer. CL offers its cannabis products in flower, vape pens, and various forms of extracts under the Cresco and Reserve brands. It also sells non-combustible products, which include tinctures, capsules, salves, and transdermal patches under the Remedi brand.
- Market Cap: $1.8B
- YTD Return: 9.4%
- 90 Day Average Trading Volume: 240,000
- 2020E Free Cash Flow: $266.7M
- Price to Free Cash Flow: 6.8x
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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