Canadian Cannabis Companies Could See Valuations Soar By Up To 300% With Tax Reform, New Report Shows

According to a recent official report, the Canadian government is considering revising the excise tax framework established in 2018 for the cannabis industry.

Originally designed to collect taxes amounting to approximately 10% of the industry's gross revenues, the reality has been that companies are burdened with tax rates between 30-40% of their gross domestic revenues due to fixed C$ tax rates at lower price points.

Senior analyst Pablo Zuanic's latest equity research report delves into the significant impacts potential excise tax changes could have on the Canadian cannabis industry.

Zuanic will also delve into how new regulations affect stock valuations and market growth at the Benzinga Cannabis Capital Conference on April 16-17. Benzinga readers, grab your tickets now before prices go up!

Financial Implications And Sector Catalysts

This tax adjustment harbors the potential to significantly benefit stakeholders across the board, including consumers, retailers, distributors, and notably the producers themselves.

For example, companies such as Ayurcann AYURF, Decibel DBCCF, and Village Farms VFF face the highest excise tax ratios relative to their domestic gross recreational sales.

Zuanic's analysis postulates that reverting to a 10% tax rate could dramatically alleviate these financial strains, potentially increasing valuation upsides for some LPs beyond their existing market caps, assuming a conservative retention of just a third of the gross benefits.

Despite these optimistic projections, the report acknowledges the government's potential hesitation to reduce its revenue streams, especially considering that excise duties on cannabis for FY23 outpaced those from beer and wine, totaling C$895 million or $658,814,870.

Calculating The Upside

Analyzing the specifics, Zuanic offers a granular view of the impact a 10% excise tax rate could have on the Canadian cannabis industry.

Taking Village Farms as a case study, the shift could trim its excise tax bill from C$29.2 million to just C$7.5 million annually, translating to a staggering net benefit.

However, the dispersion of these savings among LPs, consumers and retailers remains a point of strategic deliberation.

Even with a conservative estimate where only 33% of the tax savings flow into LPs' EBITDA, the potential for valuation upside is immense.

For instance, Village Farms could see nearly a 100% increase. Decibel and Auxly CBWTF might enjoy around a 200% jump and BZAM and Ayurcann could potentially see upwards of 300% valuation growth.

Learn more about these essential issues at the upcoming Benzinga Cannabis Capital Conference in Florida on April 16 and 17, 2024. The two-day event at The Diplomat Beach Resort will be a chance for entrepreneurs, both large and small, to network, learn, and grow. Renowned for its trendsetting abilities and influence on the future of cannabis, mark your calendars – this conference is the go-to event of the year for the cannabis world. Get your tickets now on bzcannabis.com – Prices will increase very soon!

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