Cannabis Investors Have Thrown In The Towel: American MSOs Down 21% This Week -

Cannabis Investors Have Thrown In The Towel: American MSOs Down 21% This Week

Oct 28, 2023Jeremy ParkinsonFinance, No picture0

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BackgroundIn the fall of 2020 the cannabis sector went parabolic, soaring 202% in just 4.5 months, peaking on February 9th, 2021 only to collapse by 71% over the ensuing 12 months to end up 13% below where the surge had begun. The sector decline continued over the next 12 months going down another 68%, but it didn’t stop there, unfortunately having gone down another 42% since then. The sector is now at its lowest level in the past 3 years and is now down an unbelievable 95% since it peaked back in 2021. There was a 2-week blip of optimism (+88%) at the end of August in anticipation of a possible re-classification of marijuana’s drug status in the U.S. to a lower-risk Schedule III substance which would allow American multi-state operators (MSOs) to up-list to major U.S. stock exchanges, substantially improve MSO banking requirements and procedures and allow Canadian cannabis licensed producers (LPs) to also list their stocks on U.S. exchanges and sell their products in the United States.Unfortunately, however, that enthusiasm quickly turned to pessimism with the 5 largest constituents in munKNEE’s Canadian Cannabis LPs Index and the 7 stocks in munKNEE’s American Cannabis MSOs Index together having declined 29% since the end of September and declining a monumental 18% just in the past week alone.Stock Performances MTD and YTDBelow are the performances of the constituents in each index for this week, in descending order, and month-to-date (MTD). In addition, to help ascertain which, if any, of these 12 stocks are possibly undervalued (or, at least, fairly valued, relatively speaking) to each other, given their newly heavily discounted prices, each stock’s forward-price-to-sales ratio (PSR) and enterprise value-to-earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio is provided, where applicable. A definition of each ratio is at the end of the article. Canadian Cannabis LPs Index

Canopy Growth (CGC): No change this week; Down 34.6% MTD

PSR: 1.5
EV/EBITDA ratio: Negative

Cronos Group (CRON): Down 0.6% this week; Down 14.0% MTD

PSR: 8.0 (much higher than the sector median of 3.3)
EV/EBITDA ratio: Negative

Aurora Cannabis (ACB): Down 2.2% this week; Down 25.4% MTD

PSR: 1.1
EV/EBITDA ratio: 25.6 (way above the sector median of 11.6)

Organigram Holdings (OGI): Down 6.5% this week; Down 24.2% MTD

PSR: 0.7
EV/EBITDA ratio: 6.2

Tilray Brands (TLRY): Down 7.1% this week; Down 28.5% MTD

PSR: 1.5
EV/EBITDA ratio: 19.9 (way above the sector median of 11.6)

LP Stock Performance SummaryIndex Average: Down 3.9% this week; Down 7.1% last week; Down 24.0% MTD.
American Cannabis MSOs Index

Green Thumb (GTBIF): Down 15.1% this week; Down 28.4% MTD

Forward Price-to-Sales Ratio (PSR): 1.9
Forward EV/EBITDA Ratio: 7.4

TerrAscend Corp. (TSNDF): Down 15.6% this week; Down 26.3% MTD

Forward Price-to-Sales Ratio (PSR): 1.4
Forward EV/EBITDA Ratio: 10.3

Trulieve Cannabis (TCNNF): Down 23.0% this week; Down 38.8% MTD

Forward Price-to-Sales Ratio (PSR): 0.7
Forward EV/EBITDA Ratio: 4.9

Curaleaf Holdings (CURLF): Down 24.3% this week; Down 38.5% MTD

Forward Price-to-Sales Ratio (PSR): 1.5
Forward EV/EBITDA Ratio: 10.4

Cresco Labs (CRLBF): Down 24.7% this week; Down 42.9% MTD

Forward Price-to-Sales Ratio (PSR): 0.6
Forward EV/EBITDA Ratio: 6.0

Verano Holdings (VRNOF): Down 26.6% this week; Down 28.6% MTD

Forward Price-to-Sales Ratio (PSR): 1.1
Forward EV/EBITDA Ratio: 5.8

The Cannabist Company (CBSTF): Down 50.0% this week; Down 57.8% MTD

Forward Price-to-Sales Ratio (PSR): 0.3
Forward EV/EBITDA Ratio: 8.9

MSO Stock Performance SummaryIndex Average: Down 21.4% this week; Down 1.4% last week; Down 33.2% MTDIf you are interested in the cannabis category, consider:

the AdvisorShares Pure US Cannabis ETF (MSOS) which is Down 21.6% this week and Down 34.0% MTD and/or

the Global X Cannabis ETF (POTX), which consists of the above 5 highlighted Canadian stocks plus another 12 cannabis or cannabis-related (i.e. auxiliary) stocks, is Down 4.4% this week and Down 22.4% MTD.

Definitions

The price-to-sales ratio (PSR) describes how much someone must pay to buy one share of a company relative to how much that share generates in revenue for the company. and, as such, determines whether its stock is cheap or overpriced in comparison to its peers. The mean forward sector ratio is 3.45 but is considered excellent when the value falls below two (2). The mean forward PSR for cannabis companies is 2.2.

The Enterprise Value-to-Earnings Before Interest, Taxes, Depreciation, and Amortization ratio (EV/EBITDA) is one of the best metrics used by value investors to evaluate a company because it accounts for the value of all financing the company has received from both equity stakes and debt allowing investors to compare profitability between companies. A high means the company is overvalued, while a low ratio indicates it’s undervalued. The mean forward EV/EBITDA ratio for cannabis companies is 11.6.

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