Chart: How Have Cannabis Industry Sectors Performed This Year And What Are Their Valuation Multiples? Do They Make Sense?

Viridian Capital Advisors breaks the cannabis industry down into 12 sub sectors for purposes of tracking capital raises, M&A activity, valuation, and credit analysis by industry sector.

In this week’s graph we looked at four key sub sectors of the market (Biotech/Pharma, Hemp, AgTech and Cultivation/Retail), how the top companies in each sector are being valued and how they have performed year-to date. For each sub-sector we selected the 5 largest market cap companies that have analyst estimates for 2022 revenues and EBITDA.

• The highest returning sector is Biotech/Pharma which has an estimated 13% gain YTD.  This average benefitted from the 35% return for 22nd Century Group XXII while reduced by the 22% loss of Arena Pharmaceuticals ARNA.  We note that, aside from the $7.2M GW Pharma deal in Q1, the sector has shown declining M&A activity. The strong 11.5x EV/Rev multiple is consistent with the low revenue/high IP value nature of the business.

• The lowest returning sector is Hemp with an approximate 45% loss YTD.  None of the five companies in our sector sample exceeded the 36% YTD loss of Charlotte’s Web CWEB.  Sector M&A activity is up sharply 2021 with 31 transactions YTD compared to only 1 in 2020, however, business fundamentals still lag, as CBD sales in retail have not bounced back to pre-COVID levels. The 0.9x EV/Rev multiples reflects slow growth expectations.

• Agriculture Technology is in consolidation mode as evidence by the $653M YTD M&A consideration targeted at the sector but the stocks have been punished by the slowdown in cultivation impacting several western states including Nevada and California, leading to a 24% YTD loss. The sector’s 2.3 EV/Rev multiple is the second lowest in this week’s analysis.

• The Cultivation & Retail is still down by about 7% despite the sharp rally over the last two weeks. Viridian Equity Research continues to believe that extraordinary opportunities exist in the 2nd and 3rd tier players in this sector. This sector has a 3.7x EV/Rev multiple.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis and hemp industry. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Industry Sector (one of 12 sectors, from Cultivation to Brands)

• Dollar value of the transaction

• Region in which the deal occurred (country or U.S. state)

• Status of the company announcing the transaction (Public vs. Private)

• Deal structure (equity vs. debt)

• Key deal terms (Pricing and Valuation)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.