NASDAQ-Listed Marijuana Stocks, Tilray, Canopy, Aurora Rally: What's Behind The Surge?

The Canadian cannabis sector is witnessing a notable upswing, driven by recent developments including Tilray's TLRY earnings report, Organigram's investor day OGI and pivotal movements by Canopy Growth CGC and Aurora Cannabis ACB.

Senior analyst Pablo Zuanic from Zuanic & Associates offered a high-level primer without investment opinions, highlighting key market dynamics and potential future shifts.

Meet Pablo Zuanic at the upcoming Benzinga Cannabis Capital Conference in Florida, next April 16 and 17, 2024, at The Diplomat Beach Resort. Get your tickets now on bzcannabis.com – Prices will increase very soon!

Industry Tailwinds And Investment Landscape

Recent legislative changes in Canada, Germany and the U.S. have positively impacted Canadian Licensed Producers (LPs), with several stocks doubling in the past month.

Despite this, liquidity issues in cannabis persist. Zuanic believes the most successful companies could significantly increase their market value, though they currently remain valued at about 2 to 3 times their sales, despite recent price increases.

"Given the poor liquidity of the US MSOs, with stocks like Green Thumb GTBIF and Trulieve TCNNF only trading $5-6 million a day and being the most 'liquid', several Canadian LP stocks are used as proxies for US exposure, Zuanic wrote in a recent analyst note.

“In the long term, when we look at valuation multiples in the CPG sector, we believe that EV/Sales multiples in the high single digits could be justified for the top operators. Currently, these trade at most at 2-3x, (...) a lot must play out for the industry and those operators before discussions of 10x multiples can make sense,” Zuanic said.

The analyst emphasized the global potential of top Canadian LPs, likening their prospective market dominance to Canadian firms in the mining and forestry sectors.

Financial Overview: Valuations And Short Interest

The report sheds light on valuation metrics, market capitalization, and liquidity concerns.

Aurora shows the highest short interest at 25%, followed by Tilray at 16% and Canopy Growth Corporation at 7%.

“In traded value terms, the most liquid LP stocks are Canopy, Tilray, and Aurora, ranging from $48Mn per day (last 30d) to $134Mn (the next ones are SNDL SNDL at $14Mn and Cronos CRON with $8Mn). Although eight of the LPs are NASDAQ listed, liquidity is quite low outside the top three,” Zuanic noted.

With an eye on short-term volatility, Zuanic points to the resilience and potential of certain LPs based on their current financial standings and market performance.

Revenue Performance And Sector Challenges

Tilray and SNDL emerge as revenue leaders, though their cannabis sales constitute only a part of their total revenue.

The sector sees a mix of EBITDA performances.

"By total revenues, Tilray and SNDL are the largest LPs, but it's important to note that not all their revenues come from cannabis sales. Village Farms VFF, for instance, generates less than half of its revenues from cannabis," Zuanic wrote.

"Most LPs are now EBITDA positive, with Canopy and Cronos being the notable exceptions. Cannara LOVE, Decibel DBCCF, and Avant AVTBF, on the other hand, report double-digit margins. Regarding operating cash flow, most larger LPs saw negative cash flow in the last year. Tilray and SNDL almost broke even.”

Strategic Moves And International Footprint

Strategic partnerships and overseas assets play a crucial role in the expansion strategies of Canadian LPs.

Aurora and Tilray lead in international markets, with significant operations in Germany and Portugal.

The report also touches on the U.S. market's potential, noting Canopys's advanced positioning through strategic acquisitions and investments.

The Benzinga Cannabis Capital Conference is returning to Florida, in a new venue in Hollywood, on April 16 and 17, 2024. Meet Pablo Zuanic and other industry analysts. The event at The Diplomat Beach Resort will be a chance for entrepreneurs, both large and small, to network, learn, and grow. Mark your calendars – this conference is the go-to event of the year for investors interested in the cannabis world. Get your tickets now on bzcannabis.com – Prices will increase very soon!

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