The Canadian marijuana stocks we have weeded out were among the hardest hit in yesterday’s market correction, but could snap back in the near-term due to lower average EV/Sales multiples
SmallCapPower | October 23, 2018: On Monday, October 22, 2018, Canadian cannabis stocks saw a significant price pullback during a market correction best shown by the Horizons Marijuana ETF (TSX:HMMJ), which declined 11.5% , hitting its lowest point since late August. The correction does not appear to be news driven and instead was caused by investors viewing the stocks as overvalued and fearing that current bottlenecks in sales could impede next year’s high revenue estimates. Today, we have identified four Canadian marijuana stocks that were hit the hardest on Monday but trade at forward EV/Sales multiples below the peer average of 14.6x (2019) and 5.0x (2020). These stocks could be considered bounce-back candidates due to being more realistically valued following the correction. Of note, we have also outlined the potential for a market correction in our cannabis investing landscape report (post legalization) that you can access here.
For Our Complete Coverage Of Canadian Marijuana Stocks Click Here
The Supreme Cannabis Company Inc. (TSXV:FIRE) – $1.54
Cannabis
Supreme Cannabis is a Canada-based licensed producer of medical marijuana. The Company’s primary asset is 7ACRES, which currently operates a 40,000 sq. ft. facility that produces 13,330 kg per year. The Company is also developing a 342,000 sq. ft. facility at 7ACRES that anticipates 50,000 kg of annual production. On September 26, 2018, the Company announced a supply agreement with Tilray Inc. (NASDAQ:TLRY) to provide dried cannabis in a deal estimated to be worth $12 million.
- Market Cap: $420.1 Million
- 1-Day Total Return: -17%
- 2019 EV/Sales: 6.8x
- 2020 EV/Sales: 2.4x
Auxly Cannabis Group Inc. (TSXV:XLY) – $1.05
Cannabis
Auxly Cannabis Group is a vertically-integrated cannabis company that invests and supports companies involved in cannabis cultivation. Auxly has formed partnerships with 15 cannabis producers in Canada as it plans to quickly ramp up production to 19,000 kg per quarter by Q4/2019. On October 22, Auxly announced an interim agreement with Atlantic Cultivation Inc to collaborate on the development of a 110,000 sq. ft. indoor cultivation facility in St. John’s, Newfoundland and to develop a retail foothold in the province.
- Market Cap: $610.5 Million
- 1-Day Total Return: -10%
- 2019 EV/Sales: 1.8x
- 2020 EV/Sales: 0.5x
Beleave Inc. (CSE:BE) – $1.02
Cannabis
Beleave is a Canada-based biotech company with a focus on the production of medical marijuana. The Company is working towards the development of patents through research with Canadian institutions, as well as the research and development of cannabis-based therapies, such as smoke harm reduction products, portable and stationary vaporizers and accessories. Beleave Inc’s purpose-built facility is located near Hamilton, Ontario and will be expanded to 80,000 sq. ft. with a production capacity of 32,000 kg/year.
- Market Cap: $60.5 Million
- 1-Day Total Return: -15%
- 2019 EV/Sales: 4.0x
- 2020 EV/Sales: 0.8x
Emerald Health Therapeutics Inc. (TSXV:EMH) – $3.42
Cannabis
Emerald Health Therapeutics operates an indoor cultivation facility in Victoria, British Columbia, and intends to expand into additional greenhouses. Emerald estimates its 2020 capacity to be as much as 71,000 kg/year. On October 16, the Company announced that it had filed 17 provisional U.S. patent applications covering Emerald’s unique Defined Dose cannabis dosage forms including technologies for smoking, vaping, capsules and edibles.
- Market Cap: $468.3 Million
- 1-Day Total Return: -13%
- 2019 EV/Sales: N/A
- 2020 EV/Sales: 3.6x
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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