In continuation of our discussion about the valuation multiples in the cannabis industry (MJ), let’s now delve into another multiple—EV-to-EBITDA (enterprise value-to-EBITDA)—to confirm what we discussed earlier.
In the chart above, we can see that the overall industry median represented by the nine cannabis stocks under our review—which include HEXO (HEXO), Canopy Growth (WEED), Tilray (TLRY), and Cronos Group (CRON)—bounced back to 17.7x in January from a low of 10.2x in December.
If we dig deeper into what drove the increase in this multiple, we can determine from our earlier EV-to-sales discussion that cannabis stocks’ EVs rose month-over-month on average due to increases in their prices. However, their EBITDAs fell month-over-month in January, indicating that the forward estimates for their EBITDAs anticipate cost increases because sales have remained unchanged month-over-month.
These cannabis companies are continuing to expand their operations and, by extension, the cost of running those operations. Thus, a fall in EBITDA—at least in these initial years—makes sense. An increase in EV and a fall in the average forecast for EBITDA in the cannabis industry have driven the increases in these stocks’ valuation multiples month-over-month.
Next, let’s look at individual stocks’ EV-to-EBITDA multiples and compare them with the industry median.