pharmacogenomics with respect to cannabis. That my friends, is the CannaInvestor Magazine advantage and that is not dot-com.
Now, let’s move on to market valuations. This is where the malign actors as well as the benign well intended good hearted can cause chaos. There is a popular investment show carried weekly coast to coast in Canada on the airwaves and when callers ask about investing in the cannabis industry the expert hosts refer to the industry as purely speculative with market capitalizations defying reality. If one listens to the introduction to that show as well as to its conclusion one quickly realizes that the entire show is a “paid advertisement” and the hosts try to steer callers, in my opinion, to their preferred asset mixes and services. Game theory at work … you may recall how we educated readers how promoters and those with agendas use game theory (such as the variations of the Monty Hall problem) to manipulate investors. Being manipulated does not mean you will lose money as you may be manipulated into moving into a security where the ROI is indifferent or even superior. It is the act of manipulation that is at the root.
About a year ago, it was said by some, how can Canopy Growth have a market valuation of $1B on $40M of annual revenues. It defied gravity, and investors would soon pay the price for such irrational exuberance (to keep with the spirit of the dot-com era). Today, Canopy is exceeding $80M in quarterly revenues with a market cap (at time of writing) of $18.5B. Indeed, using historical revenues as a basis, market valuations indeed appear to defy gravity and this is where they lay their hats. They may also use other historical metrics such as twelve-month trailing revenues.
Another theory of valuation uses future projected revenues. We know from the Consolidation Curve that there will be continued M&A as well as failures and typically the largest players are on the dominant side in M&A activity. The top three cultivators in Canada are Canopy Growth, Aurora Cannabis, and Aphria Inc using metrics that matter at this point in time (capacity, production, market share, revenues). Their combined quarterly revenue is nearly $200M and their combined market cap is approximately $33B. Annualized and conservatively using straight line that is $800M revenue and a market cap of $33B for the top 3 but hiding in there is Aphria with over $70M ($280M annualized straight line) in reported quarterly revenue and a market cap of approximately $2.3B – that is just a hair over an 8 to 1 multiplier. Those looking at traditional valuation metrics using revenue may see value in Aphria but one cannot
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