Home Cannabis Investors' Optimism Drives Gains in Cannabis Valuations in 2019

Investors’ Optimism Drives Gains in Cannabis Valuations in 2019


In continuation of our efforts to find out which cannabis stocks look the cheapest in January, let’s take a look at the industry average forward EV-to-sales (enterprise value-to-sales) multiple represented by the median of nine cannabis stocks.

Forward EV-to-Sales Multiple for Cannabis Sector 2019-01-19

Bouncing back

In the chart above, we can see that the median EV-to-sales multiple of the cannabis industry was at its lowest level of 3.0x in December. However, in the new year, valuations started rising from their lows. The current median valuation multiple as of January 18 is ~4.95x, up nearly 25% from December’s low.

Let’s assess what drove the month-over-month change in the median valuation multiples of the industry’s players (HMMJ), which include Canopy Growth (WEED), Tilray (TLRY), HEXO (HEXO), and Cronos Group (CRON). On average, cannabis companies’ EVs have drawn all of their valuation gains over the last month, which primarily included the gains in their stock prices. On the other hand, the forward sales estimates for the industry remained largely unchanged.

This difference indicates that the changes in these companies’ valuations were largely driven by improvements in investors’ sentiments, not gains from an improved view of their stocks’ fundamentals as represented by their sales.

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Next, let’s look at the EV-to-sales multiples of the cannabis stocks under review.

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