Does This Picture Make Sense? U.S. Vs Canadian EV/Revenue Multiples

The chart explores the EV / Next Twelve Month Revenue multiples for the largest U.S. MSOs compared to the most prominent Canadian LPs (at the beginning of the period).

The red line on the graph shows the aggregate enterprise value to consensus next twelve-month revenue multiples of the largest 10 Canadian LPs by market cap at the end of 2021. The group includes Tilray TLRY, Canopy Growth CGC, Cronos CRON, Sundial SNDL, Organigram OGI, Aurora ACB, Village Farms VFF, HEXO HEXO, Fire & Flower FFLWF, and High Tide HITI.

The blue line on the graph shows the aggregate enterprise value to consensus next twelve-month revenue multiples of the largest 11 U.S. MSOs by market cap at the end of 2021. The group includes Ascend AAWH, AYR AYRWF, Columbia Care CCHWF, Cresco CRLBF, Curaleaf CURLF, Green Thumb GTBIF, 4Front FFNTF, Jushi JUSHF, TerrAscend TRSSF, Trulieve TCNNF, and Verano VRNOF.

The green line on the graph is the US multiple divided by the Canadian Multiple to show the relative group valuations. 

In early 2022, U.S. MSOs traded at 84% of the multiple of the Canadian LPs. In June, we commented in the Viridian Deal Tracker that the market had finally begun to price the two groups rationally as the much more profitable MSOs should trade at higher revenue multiples, even accounting for 280e.  

In the last month, Canadian LPs have significantly outperformed the US MSOs and are trading at equal multiples. Several Canadians have had earnings beats. For example, Organigram turned in $4.2M EBITDA for its recently announced November quarter relative to consensus estimates of $2.0M. Even more impressively, OGI showed positive cash flow from operations. Still, the Canadian group has negative projected EBITDA for the next twelve months, and the most profitable members of the group, Tilray and Organigram are only projected to have 12% and 10% EBITDA margins, respectively. We see very little sign of accelerating profitability for the group. 

The trading multiples appear to be driven primarily by the greater liquidity from senior exchange listings. We recommend selling Canadian LPs and buying more profitable and better-valued U.S. MSOs.

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, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)

• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)

• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)

• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)

• Credit Ratings (Leverage and Liquidity Ratios)

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.