A Guide To Evaluating Cannabis Stocks: Financial Metrics, Leverage, Governance, Dilution And More

Zuanic & Associates (Z&A), has launched its research service with thematic and macro reports, followed by selective equity stock coverage.

Its expert evaluation framework guides you in making informed choices for cannabis stock investments.

Highlights Of Zuanic & Associates' Evaluation Framework

Here are the key things to consider when considering an investment in marijuana stocks:

• Avoid Highly Leveraged Companies: Stay clear of firms with negative cashflow trends to mitigate risks of shareholder dilution. Prioritize stocks with lower dilution risk, focusing on stability rather than valuation multiples.
• Governance and M&A Concerns: Steer away from companies with governance issues and lackluster M&A track records. Avoid those with excessive executive compensation, stacked boards, and a history of rule-breaking, ensuring a sound foundation for your investments.
• Sustainable Franchise Strength: Seek companies with a strong franchise, whether through outselling competitors, unique concepts, or niche expertise. A large retail store network or leading wholesale presence also indicates franchise strength.
• Positive Financial Metrics: Look for profitability, healthy cash flow conversion, and a robust balance sheet. Highlighted metrics include gross margins, cash recurring SGA to sales, cash flow conversion, and net debt-to-sales ratios.

Risks

While significant breakthroughs at the federal level in the US are not expected before the third quarter of 2024, positive catalysts will likely emerge from corporate initiatives, industry consolidation and potential listings on the TSX.

On the other hand, the main near-term challenge for the sector continues to be dilution risk, the report says. In this line, Recent offerings by Canopy Growth CGC and Tilray TLRY caused shareholder dilution and price drops.

“Cash flow and balance sheet analysis matter,” reads the report. Z&A notes that companies in Canada and the US are well-positioned to tap into a $200 billion global market (including illicit sales), and choosing the right ones, aiming for a 20% global share and a higher multiple than 5x EBITDA, is critical.

“Play the long game, leaving short-term gains to social media influencers (said respectfully) hogging the sector's airtime,” the report concludes.

Get more insights from Pablo Zuanic at the Benzinga Cannabis Capital Conference, the place where deals get done. The event is returning to Chicago this Sept 27-28 for its 17th edition. Get your tickets today before prices increase and secure a spot at the epicenter of cannabis investment, WHERE DEALS GET DONE.

"Canada's #cannabis market faces structural challenges due to regulation, stalling growth & excessive supply leading to low prices. We expect consolidation soon," Pablo Zuanic at the @Benzinga Conference@420Odysseus

Join us in Chicago, Sept 27-28 - https://t.co/CxznNV79H5 pic.twitter.com/ucK7xGJacg

— Javier Hasse (@JavierHasse) July 20, 2023

The Benzinga Cannabis Capital Conference, the place where deals get done, is returning to Chicago this Sept 27-28 for its 17th edition. Get your tickets today before prices increase and secure a spot at the epicenter of cannabis investment and branding.

Now Read

• Why Layoffs Are Inevitable In Cannabis Industry: Insights From Expert Pablo Zuanic. 

Photo by Chris Liverani on Unsplash.