Following up on a spreadsheet first presented in our last Structure on Jushi Holdings – I thought a revisit would be in order.
Back in January of this year, I was looking to tease out information about the markets’ relative value of cannabis companies….based upon sales numbers.
There’s a couple of ideas that drive looking at a sector this way both for trading and investing. Directional moves are one thing, but relative valuation is useful for portfolio weighting, as well as indicating when a company might be getting overheated (or maybe cooled off). It’s a traditional tool used in mature markets to gage perceptions around the relative quality of assets and perhaps management ability.
Since then, there’s been a few changes in the cannabis sector, mostly negative. The MSO market itself generally saw sharp price increases into February, but has since come off, settling into a relative sideways pattern (all while retaining historical volatility). That’s a mess for someone looking for returns.
It’s not easy to predict where an analysis like this is going to go. One needs to keep an open mind and let the data lay itself out. There’s a hundred ways this could be looked at or added to – I’ve seen some real gems out there in terms of data and presentation. But the information is only as good as its’ utility in making us money. This is a very high level look, and I believe that’ll need to bear out before one heads down any rabbit holes.
What’s happened in the Tiers since mid-January, and what might it tell us?:
- It’s notable that in pretty much all of them – looking at market cap to sales isn’t terribly useful at this point. The companies are relatively in lockstep within their respective Tier – indicating valuations are coupled. Problematic for those looking for an implicit ‘hedge’.
- Across different ‘tiers’ this is resolving (to some degree). Tier 3 has shown a general trend towards the mean. But.
- Planet 13 ($PLTH) skews the heck out of the Tier 3’s average market cap, and their difference in value per dollar of revenue has grown even more since last time.
- The ‘Tier 3’s’ bucked the general downtrend, with several showing gains. Perhaps due to folks going bargain hunting, hard to say.
- $TER’s taken a hard fall, while ‘Tier 2’s’ have really tightened up. ‘Consolidation’ is the word that comes to mind.
- In Tier 1, hard to miss $TRUL’s share price drop. Even then, the value per revenue dollar hasn’t demonstrated much flux. $CURA;s a bit less of a darling now; $GTII had the best value hold.
All this is saying to me so far: there’s disparate operating models in an emergent sector (underlined by a host of regulatory risk on the horizon). Data this incoherent reeks of speculative, funny enough.
Hopefully this will present a view/springboard for developing your own view(s). I’ve listened to many takes and outlooks over the years – some of which I thought were utterly ludicrous on their face – turns out to be incredibly prescient. I’m not claiming this to be that, but to emphasize the need for humility in taking a view.
I expect the Tier 3’s to continue to demonstrate more volatility than either Tier 1 or 2, which, is not much of an insight.
We’ll look at this one more time, perhaps adding Gage and Golden Leaf (Chalice Brands now, they just underwent a 23:1 reverse split) and a couple others. If it remains incoherent, we’ll look father afield for metrics that aren’t.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative.