The Canada-listed U.S. cannabis stocks, Multi-State Operators (MSOs), we’ve weeded out have lower 2020 EV/sales ratios than their peers
SmallCapPower | September 25, 2019: EV/sales is a ratio that is used by investors to help value companies by comparing its enterprise value 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 identified four Canada-listed U.S. cannabis stocks that are considered undervalued on an EV/sales basis. For reference, the stocks were chosen from a list of 62 U.S.-based MSOs that had an average 2020 EV/sales ratio of 2.5x.
*Share prices as at September 24, 2019, data obtained form S&P Capital IQ
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4Front Ventures Corp. (CSE:FFNT) – $0.80
Cannabis
4Front Ventures is a MSO that owns, operates or manages six cultivation and production facilities and 11 retail facilities across eight states. FFNT has developed two >50,000 square-foot indoor cultivation facilities in Washington with yields of more than 300 g/sq. ft. In Washington, 4Front operates one of the largest cannabis product manufacturing facilities in the world, where it produces some of its top-selling brands of flower, edibles, and oil-based products. The Company is focused on premium indoor cultivation, extraction, manufacturing, and branding of flower, edible, and derivative products. 4Front has cultivation and processing licenses in Washington, Illinois, Michigan, California, Massachusetts, and Arizona, and now also has retail licenses in Illinois, Michigan, Massachusetts, Maryland, Pennsylvania, and Arizona.
- Market Cap: $424.9M
- Enterprise Value: $429.5M
- 90-Day Return: -44.8%
- YTD-Return: -13.0%
- 90-Day Average Trading Volume: 162,260
- 2020E Projected Sales: $308M
- 2020 EV/Sales Multiple: 1.2x
Plus Products Inc. (CSE:PLUS) – $4.56
Cannabis
Headquartered in San Mateo, California, Plus Products is a manufacturer of cannabis products in the state of California. Plus Products provides consumers with edible products for the medical and recreational markets. The Company offers several lines of gummy products with varying THC:CBD ratios. As such, some of the Company’s products are marketed as “restorative” gummies, others intended for daytime use, and some gummies targeting consumers seeking pain relief. On September 9, 2019, Plus Products reported Q2/19 earnings; results were highlighted by revenue of 3.6M, as well as a cash balance of $34.1M.
- Market Cap: $163.2M
- Enterprise Value: $141.3M
- 90-Day Return: +23.2%
- YTD-Return: +1.3%
- 90-Day Average Trading Volume: 80,690
- 2020E Projected Sales: $99M
- 2020 EV/Sales Multiple: 1.4x
Harvest Health & Recreation Inc. (CSE:HARV) – $5.09
Cannabis
Harvest Health & Recreation is a vertically-integrated, multi-state operator (MSO) that holds 56 licenses nationally and has a retail footprint across 11 U.S. states. Within the next 18 months, Harvest plans to cultivate more than 720,000 square feet of indoor, outdoor and greenhouse cannabis. The Company believes that its vertical approach to design, construction, and implementation should result in low production costs. On March 11, the Company entered into a binding agreement to acquire Verano Holdings LLC, one of the largest privately-held MSOs of cannabis facilities. This deal will allow Harvest to hold licences to operate up to 200 facilities in 16 states across the country. As of June 30, 2019, Harvest Health operated 16 dispensaries, compared with 13 during the quarter ended March 31, 2019. On August 15, 2019, Harvest reported Q2/19 financial results. Net loss was $20.6M on revenue of $26.6M, and the adjusted EBITDA loss was 2.2M, a 47% decrease from the previous quarter.
- Market Cap: $1,455.3M
- Enterprise Value: $1,534.8M
- 90-Day Return: -36.5%
- YTD-Return: -29.3%
- 90-Day Average Trading Volume: 423,850
- 2020E Projected Sales: $1,136M
- 2020 EV/Sales Multiple: 1.4x
Acreage Holdings, Inc. (CSE:ACRG.U) – US$8.80
Cannabis
Acreage Holdings, founded in New York, New York, is an investment firm that specializes in the cannabis industry. The Company’s portfolio has diverse holdings in the cannabis industry: cultivating, processing, and dispensing operations. Acreage is the largest vertically-integrated owner of cannabis licenses and assets in the U.S. Acreage holds licenses in 19 states to operate, or hold, management services agreements with license holders to assist in the operation of cannabis facilities. On June 21, 2019, Acreage obtained shareholder approval for its acquisition by Canopy Growth (TSX:WEED) when cannabis becomes legal federally in the U.S. Each Acreage shareholder will receive 0.5818 Canopy shares for one Acreage share when the deal closes. On August 13, 2019, Acreage reported Q2/19 results, which was highlighted by revenue of $17.7M, adjusted net loss of $17.1M, and adjusted EBITDA loss of $12.0M. In addition, Acreage announced that it would begin opening Tweed and Tokyo Smoke dispensaries across the U.S.
- Market Cap: US$793.1M
- Enterprise Value: US$857.1M
- 90-Day Return: -47.8%
- YTD-Return: -53.3%
- 90-Day Average Trading Volume: 138,160
- 2020E Projected Sales: $507M
- 2020 EV/Sales Multiple: 1.7x
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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