In a situation reminiscent of the turn-of-the-century dot-com boom, cannabis companies that would be considered reasonably valued under normal circumstances, such as Hexo Corp., are being pressured by investors who want to see them achieve the same sky-high numbers as their competitors. Riposte Capital LLC last week urged Hexo to pursue “strategic alternatives,” pointing to the fact that its enterprise value is 8.1 times 2020 consensus Ebitda versus Tilray’s at 93.8 times or Canopy’s at 89.2 times. Riposte said a conservative multiple for Hexo would be 30 times Ebitda -- earnings before interest, taxes, depreciation and amortization.
The high valuations drew the attention of short-seller Andrew Left. Shares of the company Cronos Group Inc. sank recently after Left’s firm, Citron Research, said the stock should be trading at about a quarter of the price.
Reasonable Multiples
Once the industry reaches maturity, it’s likely the stocks will trade at multiples between those of a consumer products company and a pharmaceutical company -- somewhere between 12 times and 20 times forward Ebitda, said Matt Bottomley, an analyst at Canaccord Genuity Group Inc.
“Trying to pick what a reasonable multiple is on a one- or two- or three-year basis is not a very fruitful exercise because of how steep the growth profile is,” he said.
Until then, even the companies themselves acknowledge that it’s tough to know how valuable they are.
“Honestly, I don’t even know,” said Cam Battley, Aurora’s chief corporate officer. “Our CFO and I, we talk about this all the time. But nobody’s done this before.”
This article was provided by Bloomberg News.