Bank, Cannabis purchase recommendation Diversified Industries
John Chu, CFA • (416) 607-3109 • john.chu@desjardins.com
Amrit Sidhu, CPA, CA, Associate • (416) 607-3290 • amrit.sidhu@desjardins.com
Desjardins Cannabis High Flyer Monthly Digest—January 2021
The Desjardins Takeaway
Encouraging data points. A Democrat-controlled Senate in the US is a catalyst for potential US federal legalization. Sales momentum in Canada continues with a new record high for the eighth consecutive month, driven by Ontario. Ontario had 83 retail store authorizations in December, in line with the AGCO’s new 80 per month target. See our Chart of the month for the 2020 Canadian Cannabis Survey results. Desjardins also published its 2021 outlook and we released an ESG as well as a US Senate update.
Highlights
Industry news: (1) ESG update; (2) Democrats control the Senate; (3) New York proposes legalizing cannabis; (4) Missouri proposes legalizing cannabis; (5) IM Cannabis-Trichome merger; (6) Aphria-Tilray merger; (7) 2021 outlook; (8) OCS’s 2Q report; (9) October sales hit all-time high; and (10) Ontario doubling new store approvals to 20 per week.
Company news: (1) ACB—cultivation capacity cut, positive EBITDA timeline delayed; (2) XLY—KGK receives research licence; Kolab launches new vapes; closes C$13.8m financing; Kolab launches new strain; (3) WEED—plans nine stores; plan of arrangement with Rivers; enters US$20m financing with Arise Bioscience; BioSteel enters partnership with Raptors; facility closures; beverage executive head leaves; (4) CANN—IntelGenx order; acquired Premium 5; CannaBR agreement to sell CBD in Brazil; first AGLC order; (5) HEXO—4-for-1 share consolidation; 1Q FY21 results; (6) NEPT—launched Mood Ring line in BC; provided US update; (7) ROMJ—first order from Qubec; launched concentrates; and (8) VLNS—expands international distribution capabilities; launched water-soluble drops with Verse.
Other tidbits: (1) OPP’s illicit market update; (2) Seven US states (IA, CT, NM, PA, RI, TX, VA) could legalize cannabis; (3) Illinois expunges ~0.5m cannabis records; (4) Weedmaps to IPO; (5) Mexico’s Supreme Court extends deadline for cannabis legalization bill; and (6) MORE Act would increase federal revenue by US$13.7b.
Watch list highlights: GTEC—announces new pre-rolls; SPR—issues shares in lieu of interest; enters LOI agreement with Cannabis Manufacturer’s Guild; WMD—provides operational update; announces CEO transition; launched Saturday vapes; reported 3Q FY20 results.
One-month stock performance summary: Notable high flyers include AUSA (120%), NDVA (45%) and HARV (41%). Notable downers include RTI (-15%), MMEN (-14%) and FLWR (-13%).
One-month subsegment performance: Investments (39%), US MSOs (26%) and Canadian retail (19%) outperformed while extraction (-11%) underperformed.
Short interest changes: The largest absolute declines were at XLY (-98% period-over-period), HEXO (-79%) and HALO (-76%), and the largest absolute increase was at FIRE (32%).
Insider transactions: Buying activity in XLY, GTEC and ROMJ; selling activity in XLY, WEED and CANN.
This report was prepared by an analyst(s) employed by Desjardins Capital Markets and who is (are)
not registered as a research analyst(s) under FINRA rules. Please see disclosure section on pages
18–19 for company-specific disclosures, analyst certification and legal disclaimers. 1
JANUARY 8, 2021
Industry news
Cannabis sector—2021 ESG update (January 7). We have compiled the ESG initiatives (even amid the pandemic) for the cannabis industry and our coverage of corporations—ACB, CANN, HEXO, NEPT, ROMJ, VLNS, WEED and XLY (see our note for details (link)).
Democrats control the Senate! (January 7). A Democrat-controlled Senate bodes well for the sector as it would mean that cannabis bills could get passed more swiftly (ie pro-cannabis legislation), ultimately potentially leading to US federal legalization. Recall that Vice-President- elect Harris and President-elect Biden had stated (on October 7 and 15, respectively) that they would expunge past convictions and decriminalize cannabis. See our note for the current status for the MORE, STATES and SAFE Banking acts in the US Congress. The Senate race between the incumbent Republican David Perdue and Democrat Jon Ossoff ended with a win for the Democrats. Early on January 6, the other Senate incumbent, Republican Kelly Loeffler, lost to Democrat Raphael Warnock (link and link).
New York state lawmaker reintroduces a proposal for constitutional amendment to legalize cannabis and New York Governor Cuomo introduces adult-use cannabis program (January 6). On January 5, Democratic Senator Liz Krueger and 18 co-sponsors filed the legislation (recall that Krueger had sponsored a similar bill last year; this is the fifth version of the bill). Bill S.854 has now been referred to the Senate Finance Committee. The bill would make it so that New Yorkers aged 21+ would be able to purchase cannabis and cultivate up to six plants for personal use. Democratic New York Governor Andrew Cuomo has stated that cannabis could help offset economic losses from the pandemic and promote social equity; he also announced a proposal (on January 6) to legalize and create an equitable adult-use cannabis program as part of the 2021 State of the State (link, link and link).
Missouri state lawmaker proposes constitutional amendment to legalize cannabis (January 4). A Missouri lawmaker wants to legalize cannabis to bring in more state tax revenue. House Representative Republican Shamed Dogan is sponsoring the proposed constitutional amendment (House Joint Resolution 30 (HJR30)), which would allow Missourians aged 21+ to use cannabis and remove it from the state’s controlled substances list (link).
IM Cannabis-Trichome merger (December 30). The combined entity will operate directly in Israel, the EU and Canada, with forecast positive EBITDA in 2021. IMC will leverage Trichome’s indoor cultivation to meet growing demand for premium cannabis from IMC’s established international distribution platform. Desjardins advised on the deal (link).
Unlicensed companies are using Health Canada labels (December 22). See image below for a label similar to Health Canada’s label which has been found on unlicensed products. A Health Canada spokesperson said to the oz that, “As in any regulatory framework, there will be instances where individuals choose to operate outside of the law. Anyone who suspects illegal activity, such as the unauthorized production, sale or distribution of cannabis, including sale of fraudulently packaged and labelled cannabis, should immediately contact their local law enforcement authority”. Health Canada added that concerns can be reported to Health Canada by completing an online cannabis reporting form (link).
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John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 2
JANUARY 8, 2021
JANUARY 8, 2021
Unlicensed products with Health Canada labels
Source: Okanaganz
Aphria-Tilray merger (December 20). The announced merger between Aphria and Tilray (in an all- share transaction) is expected to yield C$100m in cost savings over a 24-month period. The transaction is complementary in many areas (see our 2021 outlook note for our expectations for more M&A in the new year (link)).
2021 outlook—hindsight 2020 as the cannabis industry advances (December 18). Desjardins published a firm-wide 2021 outlook on December 18, where we provide an overview on the outlook and potential of the cannabis sector based on certain dependencies/determinants (see our note for details (link)).
Reviewing the OCS’s 2Q report (December 18). Quarterly data released by the OCS shows customers returning to brick-and-mortar stores to make their purchases. Dry flower continues to lose market share to other form factors, which is not that surprising. While prices for some key categories continue to decline, some areas have seen price increases—which is surprising (see our note for details (link)).
Canadian industry cannabis sales for October hit a new all-time high (December 18). Industry sales hit a new all-time high for the eighth consecutive month, at C$270.0m (up 5.4% from September sales of C$256.3m), as depicted by the upward trajectory in the recreational cannabis sales graph on page 13. Recall that we had anticipated that October cannabis sales would continue on an upward trajectory overall, with Ontario being the main driver (Ontario is on pace to authorize 80 stores per month to reach the optimal number of stores per capita). Consumers continue to turn to cannabis as a vice to cope with their COVID-19-related stress/anxieties and there are more users entering the market (including illicit market users). The ‘growth of the pie’ is attributed to the increase in habitual buyers. Provinces with the highest month-over-month growth were Ontario (+7.7%), Saskatchewan (+7.5%), Qubec (+6.7%) and Alberta (6.4%). Provinces/territories with the highest month-over-month decline in sales were Nova Scotia (-4.1%), New Brunswick (-3.5%) and the Northwest Territories (-1.0%) (link).
Ontario doubling new store approvals to 20 per week (December 8). The AGCO is now issuing 80 retail store authorizations (RSAs) per month. Recall that the AGCO had previously targeted 40 stores per month; its new objective is now to issue 20 RSAs per week. As at December 8, the AGCO had received >1,300 RSA applications, issued 305 RSAs and authorized 269 open cannabis retail stores in Ontario. Furthermore, there are currently >1,100 active RSA applications still to be processed (see our note for details (link)).
Less impactful news items can be found in the Other tidbits section on page 7.
Diversified Industries
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 3
Company news
This section encompasses our coverage universe. Refer to the Watch list section for company news related to companies on our watch list. Other pertinent company news is discussed in the Industry news section above or in Other tidbits.
Aurora Cannabis Inc.
(ACB, TSX/NYSE, Hold–Average Risk, C$12.00 target, C$2.4b market cap
Experiences “cybersecurity incident” per BNN Bloomberg (January 4). On December 25, Aurora was hit by a cybersecurity incident. However, Aurora spokesperson Michelle Lefler did not comment on exactly what data was involved, but specified that patient systems were not compromised (link).
Risks to relying on Sky facility to produce premium flower (December 16). We maintained our Hold rating and reduced our target to C$12 (from C$13) on a modestly lower forecast (link).
Cultivation capacity cut again and positive EBITDA timeline pushed back for the second time (December 16). Aurora provided an operational update wherein the terms of its credit facility were revised and its cultivation capacity was cut to better streamline supply and demand (see our note for details (link)).
Auxly Cannabis Group Inc.
(XLY, TSX-V, Buy–Above-average Risk, C$0.65 target, C$231m market cap
Subsidiary KGK Science receives Institutional Cannabis Research Licence from Health Canada (December 23). This institutional licence provides the contract research organization with approval to conduct multiple cannabis research projects, removing the need to obtain individual research licences for each project (note that KGK is one of the first entities in Canada to receive this licence) (link).
Subsidiary Kolab launches new vape cartridges (December 17). According to its press release, Kolab Project vapes are the #1 selling brand in Auxly’s portfolio, and Auxly secured the #1 share position in Canada for vape products this past November, in both retail and online sales. Kolab Project’s 232 Series comes in 0.5g cartridges and is available to order from provincial wholesalers across Canada and is available in stores in Alberta. Consumers can watch out for additional 232 Series strains in the coming months (link).
Closes C$13.8m bought deal public offering (December 15). Auxly announced the closing of its bought deal short-form prospectus offering pursuant to which the company issued 46m units at C$0.30 per share for total proceeds of C$13.8m (including the full exercise of the overallotment option, originally announced at C$10.0m on November 24) (link).
Received Kind Magazine’s top hybrid pre-roll of 2020 award (December 7). Auxly subsidiary Kolab’s Headband hybrid strain was named pre-roll of the year (link).
Subsidiary Kolab launches new strain of dried flower (December 2). In a JV with Safari Flower, Ice Cream Cake comes in 3.5g formats and is available in Alberta, New Brunswick and Newfoundland, and has been available in Saskatchewan since early January (link).
Canopy Growth Corporation
(WEED, TSX/CGC, NASDAQ, Hold–Average Risk, C$22.00 target, C$14.4b market cap
Subsidiary Tokyo Smoke plans to open nine stores in Ontario (January 8). Tokyo Smoke plans to open nine franchised stores across Ontario over the course of January (link).
Awarded Spiritleaf’s top licensed producer and top beverage award of 2020 (December 21). Canopy received the award for top licensed producer at the Spiritleaf Awards 2020, which were
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John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 4
JANUARY 8, 2021
held virtually on December 6, and Canopy’s Houseplant brand won the top beverage award. Note that Spiritleaf (subsidiary of ISH) had 67 stores across Canada as at December 21 (link).
Announces plan of arrangement with Canopy Rivers (December 21). Canopy retired its ownership in Canopy Rivers (CRC) for a cash payment of C$115.0m and share payment of 3.75m common shares of Canopy. The company will receive exchangeable shares, warrants and debt in TerrAscend to increase its ownership to ~21% (previously ~13%) through the acquisition of (1) ~19.4m exchangeable shares in the capital of TerrAscend; (2) ~2.2m common share purchase warrants in the capital of TerrAscend with an exercise price of C$5.95 per share; (3) ~0.3m common share purchase warrants in the capital of TerrAscend with an exercise price of C$6.49 per share; and (4) a C$13.2m loan receivable owing by TerrAscend to CRC. Furthermore, Canopy would increase its ownership in Les Serres Vert Cannabis (ie Vert Mirabel) to ~67% (previously ~41%) (link).
Enters US$20m financing arrangement with TerrAscend’s subsidiary Arise Bioscience (December 10). TerrAscend announced it has entered into a loan financing arrangement for US$20m. In connection with the loan, TerrAscend has issued ~2.1m common share purchase warrants to Canopy (link).
Subsidiary BioSteel enters partnership agreement with Toronto Raptors to become their official sports drink (December 10). The multi-year partnership agreement will make BioSteel’s sports drink available to players and allow for branding at all Raptors home games, in addition to branding at the team’s training facility in Toronto. BioSteel’s logo will be seen on coolers, cups and on the sidelines and bench areas, home and visiting team chair backs, courtside LEDs and pole pad signage (link).
Facility closures should not hamper ability to meet demand, but it may be more difficult to produce premium products (December 9). Canopy has taken additional steps to downsize its operations (ie plans to close four indoor facilities—St. John’s, Fredericton, Edmonton, Bowmanville) and cut costs to help accelerate its path toward profitability. It also plans to close its Saskatchewan outdoor grow ops (160 acres); ~220 employees will be impacted. We believe there could be more changes as the operational review is ongoing, but we are encouraged to see continued effort to streamline its operations. While Canopy should have more than sufficient cultivation capacity to meet demand, we do wonder whether the closure of these indoor facilities will hamper the company’s ability to grow premium flower (see our note for details (link)).
Executive in charge of global beverage unit leaves less than one year since joining (December 9). Executive Andrew Rapsey joined Canopy in January 2020 and took on the role of global head of beverages in August. He announced in a LinkedIn post on December 9 that he was returning to Google (link).
The Vitamin Shoppe in the US will carry the Martha Stewart CBD line (December 8). The Vitamin Shoppe is the first national retailer to carry the full line of Martha Stewart CBD wellness products (link).
Heritage Cannabis Holdings Corp.
(CANN, CSE, Buy–Speculative, C$0.35 target, C$66m market cap
Places first order with IntelGenx for CBD filmstrips in Canada and Australia (January 7). Heritage has executed a definitive supply agreement with IntelGenx for the manufacturing and supply of filmstrip products containing 10mg of CBD using IntelGenx’s VersaFilm technology for the Canadian and Australian markets (link).
Premium 5 acquisition improves product breadth and geographic reach (December 23). Heritage announced a definitive agreement to acquire all of the issued and outstanding securities of Premium 5, a Canada-based recreational and medical cannabis company involved in premium, full-spectrum concentrates. Premium 5 will receive C$21m in Heritage shares, plus additional
Diversified Industries
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 5
JANUARY 8, 2021
Heritage shares for net working capital. The agreement also includes revenue growth and gross margin milestones over the next 24 months that could result in consideration of up to an additional C$20m, payable in Heritage shares. The transaction is expected to close before January 31, 2021 (see our note for details (link)).
Enters agreement with CannaBR to distribute and sell bulk CBD products in Brazil (December15). Heritage has entered an agreement with CannaBR Exports (a Brazil-focused pharmaceutical CBD product importation and distribution company) for the distribution and sale of bulk CBD products to the Brazilian cannabis market (link).
Announces first Pura Vida and Purefarma orders from Alberta Gaming, Liquor & Cannabis (December 14). Alberta consumers will soon be able to purchase all seven vape cartridge products offered by Heritage, including Pura Vida CBD 4:1 Honey Oil, Indica, Sativa and Hybrid Honey Oil vape cartridges, as well as Purefarma Moon, Sun and CBD Earth vape cartridges (link).
Announces change of auditor (December 11). The board of directors has appointed Davidson & Company LLP as its auditor effective December 8 (link).
HEXO Corp.
(HEXO, TSX/NYSE, Hold–Above-average Risk, C$5.40 target, C$738m market cap
Announces lapse of its short-form shelf prospectus (December 22). HEXO announces that its amended and restated short-form base shelf prospectus dated December 14, 2018 lapsed on December 22 (link).
Received Spiritleaf’s top dried flower of 2020 award (December 21). HEXO’s OS.RESERVE branded line received the award for top dried flower at the Spiritleaf Awards 2020, which were held virtually on December 6. Note that Spiritleaf (subsidiary of ISH) had 67 stores across Canada as at December 21 (link).
Completes share consolidation (December 21). Recall that on December 7, HEXO announced its revised 4-for-1 share consolidation proposal, and on December 11 it filed articles of amendment to implement the consolidation (link). Our target increases to C$5.40 (from C$1.35) to reflect the consolidation.
Reports 1Q FY21 results (December 14). For the quarter ended October 31, HEXO reported net sales of C$29.5m and adjusted EBITDA of -C$0.4m vs our forecast of net sales of C$30.1m and EBITDA of -C$3.2m (consensus was C$28.7m and -C$2.8m, respectively) (see our note for details (link)).
Received Kind Magazine’s top beverage of 2020 award (December 7). HEXO’s JV with Molson— Truss—received the beverage of the year award for its Little Victory beverage line (link).
Announces revision to share consolidation ratio (December 7). HEXO has proposed what appears to be a more favourable share consolidation ratio in light of its higher share price. In order to regain compliance with the NYSE’s US$1.00 minimum share price, HEXO is now proposing a 4-for-1 share consolidation vs its previous proposal of 8-for-1 (link).
Neptune Wellness Solutions Inc.
(NEPT, TSX/NASDAQ, Buy–Above-average Risk, C$6.00 target, C$316m market cap)
Launches Mood Ring products in BC (December 14). Mood Ring’s official entry into the Canadian cannabis market occurred the week of December 14, with its recreational cannabis products being available for the first time in BC (link).
Provides US update (December 7). After the US House voted to pass the MORE Act, CEO Michael Cammarata stated that Neptune would be opening a Florida office in 2021 to focus on matters
Diversified Industries
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 6
JANUARY 8, 2021
related to US cannabis legislation and global growth opportunities. Per its press release, “this office will lead the company’s international institutional advocacy program to drive the conversion of cannabis from an illicit to the regulated market”. (link). Recall that Neptune already has a 24,000sf facility in Conover, North Carolina, for the production of branded product.
Rubicon Organics Inc.
(ROMJ, TSX-V, Buy–Above-average Risk, C$5.00 target, C$169m market cap)
Receives first order from Qubec (December 29). On December 29, Rubicon received its first purchase order from the SQDC (recall that the letter of understanding was announced November 24). Rubicon is launching the 1964 brand exclusively for Qubec, and will include both flower and hash. Rubicon’s product portfolio in Qubec will also include Simply Bare Organic dried flower and pre-rolls. All products are expected to be made available in stores effective immediately (link).
Appoints Julie Lassonde to board of directors (December 14). Ms Lassonde has more than 20 years of experience in the banking and mining sectors in both senior executive and board roles (link).
Launches LAB THEORY premium concentrates brand (December 11). Rubicon announced the launch of its first premium concentrate brand, LAB THEORY. Five new products (Diamonds— PJP#8, Diamonds—Banana OG, Caviar—Sour Cks, Caviar—Sour Secret Strawberry and Live Resin— Tangie Cks) from the line will be available in THCA Diamonds, Caviar and Live Resin formats. Per LAB THEORY’s website, products will also soon be available in BC (link and link).
Received Kind Magazine’s top sativa pre-roll of 2020 award (December 7). Simply Bare Organics Blue Dream strain of pre-roll won (link).
The Valens Company
(VLNS, TSX, Buy–Average Risk, C$4.00 target, C$268m market cap)
Launches THC and CBD water-soluble drops under a custom manufacturing agreement with Verse Cannabis (January 6). Verse THC drops are currently available online and at select retailers in Alberta, with BC and Ontario to follow. Verse CBD drops are expected to be available online and at select retailers in 1Q CY21 (link).
Expands international distribution capabilities (December 22). Valens Australia was awarded licences to import and export cannabis-derived medical products and Valens completed its first successful shipment to Denmark for a research and development initiative (link).
Other tidbits
The Provincial Joint Force Cannabis Enforcement Team (PJFCET) provides an update on the illegal cannabis market (January 8). Over the past two years, Ontario’s PJFCET has seized 180,000 cannabis plants, thousands of pounds of dried cannabis, edibles and concentrates, C$3.2m of currency and C$1.8m in proceeds from crime (such as property, vehicles and firearms). It has also executed 152 warrants and laid 1,176 federal Cannabis Act and Criminal Code charges from large, illicit growers (link).
Iowa, Connecticut, New Mexico, Pennsylvania, Rhode Island, Texas and Virginia could also legalize cannabis in 2021 (January 6). In addition to Missouri and New York state, which rolled out constitutional amendment proposals (on January 4 and 5, respectively; see Industry news section on page 2 for details), the seven aforementioned states could also legalize cannabis in 2021. Furthermore, the newly announced (January 6) Democrat-controlled Senate could accelerate cannabis legalization in those nine states. Recall that 36 states plus the District of Columbia (DC)
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John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 7
JANUARY 8, 2021
have legalized cannabis for medical use, and 15 states plus DC have legalized cannabis for recreational use.
- Iowa. 39 elected officials (all Democrats) met in a web conference on January 6 to discuss the legalization of cannabis (link).
- Connecticut. Bill S.16 was stalled in committee but Governor Ned Lamont has said he will try again in 2021 (link).
- New Mexico. New Mexico’s Democratic House Representative Javier Martinez has announced plans to introduce a new legalization proposal during New Mexico’s 60-day legislative session (reconvenes in January) (link).
- Pennsylvania. Governor Tom Wolf has called for adult-use cannabis legalization to help boost Pennsylvania’s economy and offset the losses from the pandemic (link).
- Rhode Island. Governor Gina Raimondo included a cannabis legalization proposal in her state budget plan in January to help boost Rhode Island’s economy and offset the losses from the pandemic (link).
- Texas. Texas lawmakers have pre-filed several bills that would expand their medical cannabis program and legalize adult-use cannabis ahead of the 2021 legislative session (reconvenes in January) (link).
- Virginia. Governor Ralph Northam announced plans to introduce an adult-use cannabis legalization bill when the General Assembly reconvenes in January (link).
Illinois governor expunges ~0.5m cannabis records (December 31). Illinois Governor JB Pritzker announced on December 31 that he would expunge ~0.5m non-felony, cannabis-related arrest records and issue pardons for thousands of low-level cannabis convictions (link).
Weedmaps to IPO (December 10). Weedmaps (an app which provides cannabis retailer locations, product ratings, reviews, etc) announced plans to go public at a C$1.5b valuation through a merger with a blank-check acquisition firm. Reuters (December 9) reported on the talks between WM Holding, which owns Weedmaps, and Silver Spike Acquisition, a SPAC. The combined company will be led by WM Holding’s CEO Chris Beals and will remain listed on the NASDAQ, the company said (link).
Mexico’s Supreme Court extends the deadline for cannabis legalization bill to April 30 (December 10). The Senate passed the legalization bill in November 2020, and now the leaders in the Chamber of Deputies will review it further, with an April 30, 2021 deadline (previously December 15, 2020) (link).
Harris Poll conducts survey on cannabis usage amid pandemic (December 9). The US survey of 2,000 individuals aged 21+ conducted by independent surveyor Harris Poll in October revealed that Americans have chosen to start or increase their cannabis consumption since the pandemic, with 54% of respondents aiming to reduce their stress and anxiety, 50% of respondents aiming to relax and 48% aiming to help them sleep better (link).
Congressional Budget Office estimates MORE Act would increase revenue by net US$13.7b over nine years (December 4). CBO and the staff of the Joint Committee on Taxation estimate that the MORE Act would increase revenue on net ~US$13.7b over the 2021–30 period by creating business income, compliance and occupational taxes; increases would be partially offset by business expenses associated with trafficking controlled substances (link). Recall that in our previous monthly flyer, we had stated that the US House Committee on Rules had passed the MORE Act on December 4; the bill will now go to the Democrat-controlled Senate.
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John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 8
JANUARY 8, 2021
Watch list1
Below, we highlight a cross-section of interesting companies along the value chain, including distribution, retail, LPs focused on ultra-premium and organic ultra-premium, extraction, companies with disruptive technology, as well as a US MSO. We have no additions to the watch list and no focus stock of the month for this edition of our monthly.
Note that we do not cover any of the companies listed in this section and offer no opinion on any of the shares.
Watch list news
GTEC Cannabis Co.
(GTEC, TSX-V, not rated, C$16m market cap)
Announces new pre-rolls (December 16). During December, GTEC shipped two new pre-rolls across Canada including: (1) Tenzo 0.5g pre-rolls (in two strains); and (2) BLK MKT 1g single-pack pre-rolls (three strains) in glass tubes (link).
Sproutly Canada Inc.
(SPR, CSE, not rated, C$13m market cap)
Issues shares in lieu of interest (January 6). Sproutly intends to settle C$124,000 in accrued and unpaid interest under the indenture (originally dated April 24) and issue 2.48m common shares in the capital at C$0.05 per settlement share (link).
Enters letter of intent agreement with Cannabis Manufacturer’s Guild (December 17). The agreement will enable Sproutly’s subsidiary Toronto Herbal Remedies to expand and diversify its product offerings utilizing brands developed by CMG and its affiliate (link).
Supreme Cannabis Company Inc.
(FIRE, TSX, not rated, C$91m market cap)
No news.
WeedMD Inc.
(WMD, TSX-V, not rated, C$61m market cap)
Provides operational update (January 6). Interim CEO George Scorsis shared a message with shareholders: “Heading into 2021, we are continuing to make operational improvements in the best interests of our shareholders with a focus on increasing revenue, while maximizing margins and taking the necessary steps needed through optimization measures to get us closer to profitability” (link).
Announces CEO transition (January 4). Executive chairman George Scorsis has been appointed interim CEO following former CEO Angelo Tsebelis’ decision to step down and to take an advisory role with the company (link).
Launches Saturday-branded vapes (December 17). In late December in Ontario, WeedMD launched its new Saturday-branded 1g, 510-thread vape products in the strains Lemon Haze and Sour Pineapple (link).
Received Kind Magazine’s top sativa dried flower of 2020 award (December 7). Color Cannabis’s Pedro’s Sweet Sativa strain was named sativa dried flower of the year (link).
Reports 3Q FY20 results (November 30). WeedMD reported net revenue of C$6.3m and adjusted EBITDA of -C$5.3m vs consensus of C$7.8m and -C$1.9m, respectively (link).
1 All of the information relating to companies on the watch list is publicly available, and inclusion on this list does not constitute a research opinion or recommendation. Any of the companies on the watch list may have been, are currently or may become clients of Desjardins Capital Markets
Diversified Industries
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 9
JANUARY 8, 2021
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Chart of the month: Health Canada’s 2020 Canadian Cannabis
Survey results
Health Canada conducted its annual survey to obtain information on the following cannabis-related items: patterns of use, such as the quantity of cannabis consumed and the use of cannabis for medical purposes; the cannabis market, such as sources of cannabis and pricing; issues of public safety, such as impaired driving. The 2020 Canadian Cannabis Survey includes additional items in the survey, such as cannabis use in the context of the pandemic. Survey results are based on 10,822 respondents aged 16+ across Canada.
Frequency of cannabis product usage by cannabis users. In the exhibit below, people who used cannabis in the past 12 months were asked about the types of cannabis products they had used. Note that people could select more than one product and that the six most common products used are summarized in the exhibit below. In 2020, 74% of cannabis users had used dried flower in the past 12 months (down from 77% in 2019), 49% had used edibles products (up from 44% in 2019) and 22% had used vapes (down from 26% in 2019). In other words, smoking remains the most common method of consuming cannabis, but it has declined whereas eating cannabis products has increased since 2019. Recall that legal edibles were available on shelves nationwide in January 2020; hence, the increase in consumption seems logical.
Frequency of cannabis products usage by cannabis users
Dried flower
Edibles products
Concentrates/ extracts
2019
Vape pens/ cartridges
2020
Oil for oral use
Hashish/kief
Source: Desjardins Capital Markets, Health Canada
Product preferences by gender. A higher percentage of males reported using dried flower (79%), hash (23%), cartridges/vape pens (23%) and concentrates/extracts (17%), compared with females (67%, 14%, 20% and 9%, respectively). A higher percentage of females reported using edibles (51%) and topicals (9%) when compared with males (47% and 5%, respectively). Cannabis oil for oral use was the same for both males and females (25%). The least used cannabis products for both males and females were beverages (7% and 5%, respectively).
Other noteworthy findings. (1) More than 50% of Canadian cannabis users surveyed chose to obtain their cannabis through a legal source; and (2) the COVID-19 pandemic has impacted cannabis users’ usage as evidenced by the following survey results: 56% reported using the same amount, while 22% reported using more and 22% reported using less (link and link).
Diversified Industries
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 10
Frequency of cannabis products used
Earnings roundup
JANUARY 8, 2021
Licensed producers
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Sales—reported Sales—consensus EBITDA—reported EBITDA—consensus
Two quarters Most recent
Two quarters Most recent
Two quarters Most recent
ago
quarter ago
quarter
ago
quarter
Aphria
Canopy
HEXO
Aurora
Cronos
Auxly
Delta 9
Rubicon
Tilray
8.6
13.4
8.5
10.8
-7.8 -6.8
-9.1 -8.3
152.2
145.7
72.1
67.8
149.9
159.6
73.7
64.3
-17.3 10.0
-34.6 -10.5
9.3 11.9
-26.9 -10.0
13.0 13.1
NA NA
1.7 1.9
NA
NA
110.4 135.3
13.1
14.8
97.6 119.5
12.6
14.4
-124.1
-85.7
-35.9 -39.2
-106.3
-88.3
-33.1 -31.3
1.0
3.2
0.9
3.9
-2.5
-2.6
-2.6
-1.0
22.1 27.1
23.2
18.0
20.4 24.1
20.8
22.0
-4.3 -3.3
-33.4 -24.7
-8.3 -4.8
-1.2 -0.2
Supreme
OrganiGram
TerrAscend
VIVO
50.4 51.4
54.8 54.4
-12.3 -1.5
-14.3 -8.1
9.5
11.9
47.2
51.0
10.3
12.1
45.1
52.5
-4.2
0.3
11.4
17.8
-3.1
-0.9
11.4
16.6
Village Farms
WeedMD
5.9 6.3
8.6 7.8
-5.7 -5.3
-4.3 -1.9
70.1 69.8
9.4
7.5
60.9 63.9
6.9
9.6
3.0 6.1
-2.2
-2.0
1.4 2.5
Grey: no consensus available; red: missed consensus; yellow: in line with consensus; green: beat consensus Source: Desjardins Capital Markets, FactSet, company reports
-3.5
-2.0
Extractors
Sales—reported Sales—consensus EBITDA—reported EBITDA—consensus
Sales—reported Sales—consensus EBITDA—reported EBITDA—consensus
Two quarters Most recent
Two quarters Most recent
Two quarters Most recent
ago
quarter ago
quarter Heritage
Valens
ago
quarter MediPharm
EnWave
7.5 6.0
1.4
2.4
13.9
4.9
9.8 7.5
6.4
1.9
10.7
14.0
-2.0 -1.0
-2.1
-0.2
-6.2 -7.3
0.4 -0.4
0.2
-1.4
-2.7 -3.2
Neptune
21.4
28.7
17.6
18.1
20.9
31.2
20.2
18.4
-3.4
-12.9
2.7
1.4
-3.4
-1.2
4.2
0.8
Grey: no consensus available; red: missed consensus; yellow: in line with consensus; green: beat consensus Source: Desjardins Capital Markets, FactSet, company reports
Amrit Sidhu, CPA, CA, Diversified Industries Associate 11
John Chu, CFA
Events calendar
JANUARY 8, 2021
Retailers
Sales—reported Sales—consensus EBITDA—reported EBITDA—consensus
Sales—reported Sales—consensus EBITDA—reported EBITDA—consensus
Sales—reported Sales—consensus EBITDA—reported EBITDA—consensus
Two quarters Most recent
Two quarters Most recent
Two quarters Most recent
ago
quarter
ago
quarter
ago
quarter High Tide
Decibel
Alcanna
Choom
215.6
211.5
2.2 4.1
19.6
23.2
201.4
213.9
NA NA
19.6
22.0
19.4 21.3
-1.8 -1.0
1.9 2.6
14.8 19.0
NA NA
1.9 2.6
Inner Spirit
YSS
Fire & Flower
5.4 8.1
23.1 28.6
5.0 6.4
NA NA
19.7 23.8
NA NA
0.2 1.1
-2.2 -0.3
-4.0 0.0
NA NA
-3.9 -3.5
NA NA
4.2 4.7
NA NA
-0.8 -0.3
NA NA
Grey: no consensus available; red: missed consensus; yellow: in line with consensus; green: beat consensus Source: Desjardins Capital Markets, FactSet, company reports
Events calendar
Date Event
Jan-14 Aphria reports 2Q FY21 results
Mid-Jan ADCANN Awards to be announced
Jan-20 Cannabis Act Review: Medical Cannabis and Cannabis Health Products Jan-22 November industry sales data to be released
Feb-3 Cannabis Act Review: Illicit market and anti-money laundering
Feb-17 Cannabis Act Review: Ancillary businesses
Source: Desjardins Capital Markets, Bloomberg, various sources
Notes
Pre-market TBD Webcast 8:30am Webcast Webcast
Research library—in case you missed it... Research library—in case you missed it...
Date Company
New company research:
Dec-23 CANN Dec-16 ACB
Dec-9 WEED Industry research/archives: Jan-7 Diversified Jan-7 Diversified Dec-18 Diversified Dec-18 Diversified Dec-9 Diversified Nov-12 Diversified
Source: Desjardins Capital Markets
Diversified Industries
Title/link
Premium 5 acquisition improves product breadth and geographic reach Risks to relying on Sky facility to produce premium flower
Post-1Q call—sales and EBITDA momentum building
Cannabis sector—2021 ESG update
Democrats take control of the Senate!
Reviewing the OCS’s 2Q report; October industry sales hit new highs...again! 2021 outlook—hindsight 2020 as the cannabis industry advances
Ontario doubling new store approvals to 20 per week
Biden wins, but road ahead filled with potholes as Republicans maintain control of the Senate
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 12
JANUARY 8, 2021
Industry statistics Spot price—Canada
8.50 8.00 7.50 7.00 6.50 6.00 5.50 5.00
Source: Desjardins Capital Markets, Cannabis Benchmarks
Recreational cannabis sales
Spot price—US
2,200 2,000 1,800 1,600 1,400 1,200 1,000
800 600 400
US spot
US outdoor
US greenhouse
US indoor
Source: Desjardins Capital Markets, Cannabis Benchmarks
95 85 75 65 55 45 35 25 15
5
290 240 190 140 90 40 -10
270 256
245
232
201 146 154 181 180 186
127
150
104 123 129 136
75 86 91
54 54 57 55 52 61
Source: Desjardins Capital Markets, Statistics Canada
Qubec (LHS)
Ontario (LHS)
Alberta (LHS)
Canada (RHS)
Diversified Industries
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 13
Federal sales (C$m)
Oct-18 Nov-18 Dec-18
Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20
(US$/lb)
Provincial sales (C$m)
(C$/g)
Jan-19 Feb-19 Mar-19 Apr-19 May-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Nov-20 Dec-20
JANUARY 8, 2021
Performance summary
Performance by subsegment (as at January 7, 2021) Performance 1m 3m 6m
(%)
LPs
Canadian LPs
US MSOs
5.2 56.3 18.9 26.0 76.1 81.7
Ytd
23.0 26.2
14.4 11.5 24.8
-0.2 8.8 15.2 4.3 25.1 47.1
12m Companies
-9.6 ACB, APHA, CRON, FIRE, GTEC, HEXO, OGI, TGOD, TRST, WEED, WMD, VFF, ZENA
46.7 ACRG, CL, CURA, CWEB, FFNT, FONE, GGB, GTII, HARV, IAN, LHS, MMEN, MJAR, PLUS, ROMJ, SNN, TER, TGIF, TLRY, TRUL
-79.8 CANN, LABS, NEPT, RTI, SPR, VLNS
-11.3 BEER, CWEB, HEXO, SPR, TLRY, WEED, WTER -23.6 ACB, CWEB, EXL, GWPH, TGIF, TLRY, WEED, WTER
27.1 CHOO, CLIQ, FAF, HITI, ISH
101.4 CL, HARV, MMEN, OH, PLTH, TRUL
-6.4 AGRA, OGI, ROMJ, TGOD 39.4 GTEC, ROMJ
8.0 ALEF, EVIO, IAN, IIPR, KSHB, MRMD, SAFE, SHOP, SNN, TILT 7.6 AUSA, FFNT, GENE, IAN, RIV, XLY
Extraction -10.5 Beverages/edibles 2.8 CBD/hemp 2.2 Retail
Canadian retail 18.9
-12.4 -27.3 63.8 19.9 57.2 11.0
32.2 28.0 76.8 155.0 26.5 -8.6 10.7 -4.2
US retail 13.7
Organic 5.2
Ultra-premium -5.5
Pick and shovel 11.3 82.5 46.2
Investments 38.8 Source: Desjardins Capital Markets, FactSet
164.5 76.3
Amrit Sidhu, CPA, CA, Diversified Industries Associate 14
John Chu, CFA
JANUARY 8, 2021
Performance by market cap (as at January 7, 2021) >C$1b market cap, 1-month
>C$1b market cap, 3-month
>C$1b market cap, LTM
272% 203%
124% 78%
51% 29%
29% -7%
-16% -19% -26%
-55% -57%
HARV-CA TLRY-US TRUL-CA GTII-CA HEXO-CA OGI-CA CURA-CA WEED-CA TGOD-CA CRON-CA APHA-CA TER-CA ACB-CA CWEB-CA
TLRY-US HARV-CA TER-CA ACB-CA GTII-CA WEED-CA TRUL-CA CURA-CA CWEB-CA HEXO-CA APHA-CA CRON-CA OGI-CA TGOD-CA
-25%
118% 115% 113%
111% 93%
88% 86%
79% 76%
62% 60% 58%
46% 75%
TER-CA TRUL-CA GTII-CA CURA-CA APHA-CA WEED-CA CRON-CA CWEB-CA HARV-CA HEXO-CA OGI-CA TLRY-US ACB-CA TGOD-CA
430% 430%
41% 38%
31% 28%
19% 17%
14% 7%
4% 3% 3%
25%
C$0.4–1b market cap, 1-month
-3%
-3% -11%
9% 25%
-25%
75%
125%
175%
263% IAN-CA XLY-CA VFF-CA KSHB-US RIV-CA PLTH-CA CL-CA MMEN-CA FONE-CA FIRE-CA VLNS-CA CVSI-US GGB-CA LABS-CA
-150% -50% 50% 150% 250% 350% 450%
C$0.4–1b market cap, LTM
C$0.4–1b market cap, 3-month
RIV-CA FONE-CA KSHB-US
VFF-CA CL-CA IAN-CA VLNS-CA XLY-CA GGB-CA PLTH-CA FIRE-CA CVSI-US LABS-CA MMEN-CA
25% 17%
16% 11%
36% IAN-CA XLY-CA VFF-CA KSHB-US RIV-CA PLTH-CA CL-CA MMEN-CA FONE-CA FIRE-CA VLNS-CA CVSI-US GGB-CA LABS-CA
170% 149%
116%
114% 75%
263% 170%
149% 116%
114% 75%
74% 34%
30% 29% 25%
12% 0%
100% 200% 300%
-8% -9% -10%
-14% -25%
0%
25%
50%
120%
-44% -100%
0%
200%
300%
-44%
-100% 0%
-1%
8% 6%
3% 0%
74% 34%
30% 29% 25%
12% 0%
100%
AUSA-CA NDVA-CA CLIQ-CA AH-CA N-CA NRTH-CA ROMJ-CA HVT-CA VIVO-CA EMH-CA KHRN-CA SPR-CA WMD-CA GTEC-CA FLWR-CA RTI-CA
AUSA-CA CLIQ-CA VIVO-CA HVT-CA NDVA-CA GTEC-CA AH-CA WMD-CA EMH-CA SPR-CA ROMJ-CA NRTH-CA FLWR-CA RTI-CA N-CA KHRN-CA
166%
ROMJ-CA CLIQ-CA NDVA-CA AH-CA AUSA-CA VIVO-CA N-CA EMH-CA GTEC-CA NRTH-CA HVT-CA KHRN-CA WMD-CA SPR-CA RTI-CA FLWR-CA
115% 59%
39% 3%
<C$0.4b market cap, 1-month
<C$0.4b market cap, 3-month
39% 32%
25% 23% 21%
20% 14% 13% 13%
0%
0% -5%
-6% -8% -11%
<C$0.4b market cap, LTM
45% 13%
11% 4%
3% 1% 0%
-3%
-4% -10% -10% -11%
-12%
-13% -15%
-14% -23%
-31% -33% -36%
-54%
-56% -61% -63%
-77% -77% -80%
-50% 0% 50% 100% 150%
Source: Desjardins Capital Markets, FactSet
Diversified Industries
-50% 0% 50% 100% 150% 200%
-150% -100% -50% 0% 50% 100% 150%
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 15
Short interest
Insider transactions (coverage and watch list companies only)
JANUARY 8, 2021
Short interest (as at January 7, 2021)
Top absolute declines in short
position Exch
Top absolute increases in short position Security Sym Exch
Security
Auxly
HEXO
Halo Labs
TGOD
Revive Therapeutics Mountain Valley New Wave
Mym Nutraceuticals WeedMD
Juva Life
Nutritional High Jushi Holdings
The Flowr OrganiGram
Kiaro
Thoughtful Brands Aphria
Australis Capital Icanic Brands Khiron Life Sciences Ionic Brands
Source: IIROC
Sym
XLY HEXO HALO TGOD RVV MVMD SPOR MYM WMD JUVA EAT JUSH FLWR OGI KO
TBI APHA AUSA ICAN KHRN IONC
# shs
Net chg
-29,410,535 -17,235,161 -8,887,585 -5,204,982 -3,308,137 -2,410,218 -2,172,508 -1,483,981 -1,288,274 -1,214,647 -1,137,900 -855,155 -827,299 -818,906 -636,684 -634,955 -578,549 -463,562 -455,070 -384,867 -365,350
% SI % chg shs O/S -98 0.1 -79 1.0 -76 0.3 -40 2.0 -81 0.6 -76 0.3 -73 3.1 -95 0.1 -91 0.1 -81 0.2 -95 0.0 -48 1.0 -39 1.1 -12 3.2 -97 0.0 -81 0.2 -7 2.3 -93 0.0 -56 0.4 -70 0.1 -74 0.1
# shs
16,215,035 3,425,131 3,455,895 2,678,844 2,547,645 1,648,686 1,255,566 1,075,961 3,543,179
564,173 1,481,664 561,576 1,751,214 357,555 277,092 256,283 4,607,662 300,167 883,285 174,948 342,302
Net chg
3,905,621 3,301,340 2,806,314 2,375,638 2,356,717 1,207,848 1,168,446
915,961 687,732 536,300 511,897 416,385 321,042 291,269 256,344 242,092 234,063 220,841 163,813 160,978 147,624
% SI % chg shs O/S 31.7 14.8 NM 1.9 432 0.4 784 4.2 NM 1.9 274 0.3 NM 0.1 572 0.5 24 5.4 NM 0.1 53 1.2 287 0.2 22 0.6 439 0.1 NM 0.1 NM 0.1 5 3.0 278 0.1 23 0.2 NM 0.2 76 0.1
TSX-V
TSX
AQL
TSX
CSE
CSE
CSE
CSE
TSX-V
CSE
CSE
CSE
TSX-V
TSX
TSX-V
CSE
TSX
CSE
CSE
TSX-V
CSE 128,234
The Supreme Cannabis FIRE TSX-V Innocan Pharma INNO CSE Zenabis Global ZENA TSX-V BevCanna BEV CSE Global UAV UAV CSE MedMen MMEN CSE Agraflora Organics AGRA CSE SugarBud SUGR TSX-V Village Farms VFF TSX-V Beleave BE CSE Valens VLNS TSX-V Liberty Health Sciences LHS CSE Aleafia Health AH TSX-V Tilt TILT CSE Radient Technologies RTI TSX-V 1933 Industries TGIF CSE MediPharm Labs LABS TSX-V BioHarvest Sciences BHSC CSE Curaleaf CURA CSE Trutrace Technologies TTT CSE Namaste Technologies N TSX-V
540,729 4,662,983 2,869,299 7,689,688
781,001 769,082 822,816
71,048 124,981 292,495
66,182 930,312 1,310,589 6,178,482 19,647 153,739 7,198,050 35,571 361,584 166,931
Insider transactions (as at January 5, 2021)1 Transaction
Ownership type
Direct
Direct
Direct
Direct Direct Direct
Indirect
Direct Direct
Nature of Price transaction Volume (C$)
Company date
Aurora NA Auxly 2-Jan-21
(report date: 16-Dec-19) 2-Jan-21
(report date: 9-Sep-20) 2-Jan-21
(report date: 26-June-20) Canopy 31-Dec-20
GTEC 15-Dec-20 16-Dec-20
Harvest One NA Heritage 14-Dec-20
HEXO NA
Nabis NA Neptune NA Rubicon 17-Dec-20
14-Dec-20 Sproutly NA
Insider name
Imperial Brands Plc
Hugo Alves2
Chuck Rifici
David Lazzarato Michael Blady Norton Singhavon
Estek Ventures Corp., Debra Senger
Jesse McConnell Eric Savics
Title/role
Insider
CEO
Director
Director Director CEO
Former CEO
Director
10% security holder
Securities
Common sh
Common sh
Common sh
Common sh Common sh Common sh
Common sh
Common sh Common sh
Acq’n in public market
Disp’n in public market
Disp’n in public market
Disp’n in public market Acq’n in public market Acq’n in public market
Disp’n in public market
Acq’n in public market Acq’n in public market
+6,315,574 NA -8,461,444 NA -5,528,038 NA
-1,009 31.91 +125,500 0.11 +100,000 0.12
-100,000 0.13
+15,000 3.30 +30,000 3.39
Supreme NA
Valens NA
WeedMD NA
1 Transactions have been consolidated and an average price calculated; 2 Share loan pursuant to a securities lending agreement related to a C$25m standby convertible debenture
financing dated September 8, 2020;
Source: Desjardins Capital Markets, SEDI, Canadian Insider
Diversified Industries
John Chu, CFA
Amrit Sidhu, CPA, CA, Associate 16
JANUARY 8, 2021
Comps table
Cannabis LP comparables summary
Company
Canadian LPs (C$)
Aphria Inc.
Aurora Cannabis Inc.
Canopy Growth Corporation
Cronos Group Inc.
Green Organic Dutchman Holdings Ltd.
HEXO Corp.
OrganiGram Holdings Inc
Rubicon Organics, Inc.
Supreme Cannabis Company Inc
Sundial Growers Inc.
Tilray, Inc.
Village Farms International, Inc.
Zenabis Global Inc
Total
Total (ex outliers)
US MSOs (US$)
Charlotte’s Web Holdings, Inc.
Curaleaf Holdings Inc.
Green Thumb Industries Inc.
GW Pharmaceuticals plc (sponsored ADR)
Harvest Health & Recreation Inc.
iAnthus Capital Holdings, Inc.
Innovative Industrial Properties, Inc.
KushCo Holdings, Inc.
MedMen Enterprises Inc.
Planet 13 Holdings Inc.
Trulieve Cannabis Corp.
Total
Total (ex outliers)
Etraction/disruptive technologies (C$)
Auxly Cannabis Group
EnWave Corporation
Heritage Cannabis Holdings Corp.
MediPharm Labs Corp.
Neptune Wellness Solutions Inc.
Radient Technologies Inc.
Sproutly Canada Inc.
The Valens Company
Total
Total (ex outliers)
Retail (C$)
Alcanna Inc.
Choom Holdings Inc.
Fire & Flower Holdings Corp.
High Tide Inc.
Inner Spirit Holdings Ltd.
Total
Total (ex outliers)
Pick and shovel (US$)
3 Sixty Risk Solutions Ltd.
Aleafia Health Inc.
EVIO, Inc.
MariMed Inc.
RavenQuest BioMed Inc.
Shopify Inc.
Sunniva Inc.
TILT Holdings Inc.
Total 0.16 Total (ex outliers) 0.44 Source: Desjardins Capital Markets, FactSet
Price Ticker Jan-7 ($)
Mkt cap (C$m)
3,439.9
2,369.2 14,489.4 3,975.0 140.3 737.9 506.0 169.2 90.6 522.2 1,794.6 1,046.4 54.1
817.8 7,955.1 6,289.8 3,922.0 1,420.1
59.2 3,865.0 148.0 158.2 1,410.5 4,701.1
230.7 137.1 66.6 81.9 316.0 28.1 12.6 268.3
263.1 20.6 115.0 79.0 38.4
8.5
2.8 59.2 3,865.0 148.0 186.3 0.8 127,599.5 5.9 167.5
EV (C$m)
3,188.4
1,871.6 13,603.9 2,397.4 153.5 639.9 420.7 171.5 130.7 166.3 1,826.2 934.2 166.5
784.7 11,488.3 7,712.3 3,494.6 1,686.8 59.2 3,322.9 143.7 266.1 1,202.6 5,900.6
327.5 124.2 61.4 59.2 266.4 42.5 8.4 271.7
607.3 42.5 185.1 104.7 58.5
13.2 13.4 59.2
3,322.9 143.7 270.8 14.6 139,616.7 63.3 268.6
EV/EBITDA (x)
FY20E FY21E FY22E
45.6 21.9 12.1 NM 53.8 14.7 -44.4 NM 97.1 -15.5 -23.0 -43.5 -5.2 NM -38.4 208.4 NM 12.0 94.7 17.4 7.4 -18.5 12.0 6.8 32.4 17.3 NM -7.9 -19.2 177.6 -53.0 NM 53.8 57.1 15.8 8.8 NM NM NM 26.7 12.0 28.0 51.4 23.0 35.2
-30.1 108.4 53.9 61.1 23.1 15.6 35.4 20.8 15.8
NM 59.8 13.3 65.6 17.1 13.2 NM NM NM 32.4 17.5 13.1 19.0 5.8 3.8 -7.8 NM NM 66.2 21.7 14.7 18.5 13.1 10.2 28.9 31.9 17.1 28.9 31.9 17.1
-10.6 -56.9 21.2 28.9 16.7 NM -20.5 8.0 NM -3.3 19.3 2.1 -9.8 16.3 NM NM NM NM NM NM NM 13.8 8.8 5.2 -0.3 2.0 9.5 13.8 13.8 9.5
8.6 8.7 NM NM NM NM -347.1 9.5 15.4 11.1 3.8 2.3 NM 11.0 NM -109.1 8.3 8.8 9.9 8.3 8.8
NM NM NM NM NM NM NM NM NM
32.4 17.5 13.1 19.0 5.8 3.8 NM NM NM NM NM NM 359.1 310.9 207.7 NM NM NM 21.4 4.5 NM
EV/sales (x)
FY20E FY21E FY22E
NM 4.7 3.6
-6.1 6.3 4.8 -15.1 24.7 17.2 -16.1 43.0 21.7
-2.3 7.3 2.6 -5.2 4.8 3.7 -7.0 3.9 2.9
-14.9 15.5 3.1 -3.2 2.3 1.8 -2.7 3.0 2.5 -9.1 8.8 6.5
-32.8 3.6 2.7 -2.0 NM NM -9.7 10.7 6.1 -2.4 10.7 6.1
6.4 4.4 3.1 14.2 7.2 5.3 11.1 7.3 5.8
6.7 4.9 3.6
5.8 3.7 NM NM NM NM 28.3 16.4 14.1 1.0 0.8 0.6 1.3 1.0 NM 12.6 6.5 4.9 9.0 5.9 4.7 9.6 5.8 5.3 9.6 5.8 5.3
7.4 3.8 2.4 2.7 2.2
6.2 2.0 NM 1.6 1.0 0.5 2.5 1.4 NM
NM NM NM NM NM NM 3.0 1.9 1.4 3.9 2.1 1.4 3.9 2.1 1.4
0.7 0.8 NM NM NM NM 1.5 0.9 0.9 1.3 0.6 0.4 2.2 1.7 NM 1.4 1.0 0.6 1.4 1.0 0.6
NM NM NM NM NM NM NM NM NM
28.3 16.4 14.1 1.0 0.8 0.6 NM NM NM NM NM NM 49.0 36.9 26.5 NM NM NM 1.3 0.8 NM
APHA-CA 10.86 ACB-CA 12.90 WEED-CA 38.77 CRON-CA 11.16 TGOD-CA 0.29 HEXO-CA 6.04 OGI-CA 2.18 ROMJ-CA 3.59 FIRE-CA 0.18 SNDL-US 0.69 TLRY-US 11.34 VFF-CA 15.84 ZENA-CA 0.07
CWEB-CA 5.88 CURA-CA 17.32 GTII-CA 35.20 GWPH-US 125.78 HARV-CA 3.50 IAN-CA 0.35 IIPR-US 174.30 KSHB-US 1.12 MMEN-CA 0.22 PLTH-CA 7.69 TRUL-CA 49.21
XLY-CA 0.37 ENW-CA 1.23 CANN-CNQ 0.14 LABS-CA 0.54 NEPT-CA 2.44 RTI-CA 0.09 SPR-CNQ 0.05 VLNS-CA 2.09
CLIQ-CA 6.57 CHOO-CNQ 0.07 FAF-CA 0.90 HITI-CNQ 0.27 ISH-CNQ 0.18
SAFE-CA 0.06 ALEF-CA 0.00 EVIO-US 0.35 MRMD-US 174.30 RQB-CA 1.12 SHOP-US 0.62 SNN-CNQ 0.01 TILT-CNQ 1,159.53
Amrit Sidhu, CPA, CA, Diversified Industries Associate 17
John Chu, CFA
JANUARY 8, 2021
DISCLOSURES
COMPANY-SPECIFIC DISCLOSURES
Full disclosures for research of all companies covered by Desjardins Capital Markets can be viewed at https:// desjardins.bluematrix.com/sellside/Disclosures.action.
ANALYST CERTIFICATION
Each Desjardins Capital Markets research analyst named on the front page of this research publication, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst’s personal views about the company and securities that are the subject of this publication and all other companies and securities mentioned in this publication that are covered by such research analyst, and (ii) no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this publication.
STOCK RATING SYSTEM
Top Pick
Desjardins’ best investment ideas—stocks that offer the best risk/reward ratio and that are expected to significantly outperform their respective peer group* over a 12-month period
Buy
Stocks that are expected to outperform their respective peer group* over a 12-month period
Hold
Stocks that are expected to perform
in line with their respective peer group* over a 12-month period
Sell
Stocks that are expected
to underperform their respective peer group* over a 12-month period (includes recommendations to tender to a takeover offer)
Speculative
Not Rated
Stock is being covered exclusively on an informational basis
RISK QUALIFIERS
Average Risk
Risk represented by the stock is in line with its peer group* in terms of volatility, liquidity and earnings predictability
Above-average Risk
Risk represented by the stock is greater than that of its peer group* in terms of volatility, liquidity and earnings predictability
High degree of risk represented by the stock, marked by an exceptionally low level of predictability
* Peer group refers to all of the companies that an analyst has under coverage and does not necessarily correspond to what would typically be considered an industry group. Where an analyst’s coverage universe is such that ‘relative’ performance against a ‘peer group’ is not meaningful, the analyst will benchmark the rating against the most appropriate market index
Distribution of ratings
Rating Desjardins category rating
Buy Buy/Top Pick Hold Hold
Sell Sell/Tender
Total
Desjardins coverage universe (# of stocks) 99
46
3
148
% Desjardins Investment %
distribution Banking (# of stocks)
distribution
67 63 63 31 37 37 2 0 0 100 100 100
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Dissemination of Research
Desjardins Capital Markets makes all reasonable effort to provide research simultaneously to all eligible clients. Research is available to our institutional clients via Bloomberg, FactSet, FirstCall Research Direct, Reuters and Thomson ONE. In addition, sales personnel distribute research to institutional clients via email, fax and regular mail.
Additional Disclosures
Desjardins Capital Markets equity research analysts are compensated from revenues generated by various Desjardins Capital Markets businesses, including Desjardins Capital Markets’ Investment Banking Department. Desjardins Capital Markets will, at any given time, have a long or short position or trade as principal in the securities discussed herein, related securities or options, futures, or other derivative instruments based thereon. The reader should not rely solely on this publication in evaluating whether or not to buy or sell the securities of the subject company. Desjardins Capital Markets expects to receive or will seek compensation for investment banking services within the next three months from all issuers covered by Desjardins Capital Markets Research.
Legal Matters
This publication is issued and approved for distribution in Canada by Desjardins Securities Inc., a member of the Investment Industry Regulatory Organization of Canada (IIROC) and a member of the Canadian Investor Protection Fund (CIPF). In the US,
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JANUARY 8, 2021
this publication is issued via the exemptive relief described in SEC Rule 15a-6, and through reliance on Desjardins Securities International Inc., a member of FINRA and SIPC.
This publication is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such offer or solicitation would be prohibited. The securities mentioned in this publication may not be suitable for all types of investors; their prices, value and/or income they produce may fluctuate and/or be adversely affected by exchange rates. This publication does not take into account the investment objectives, financial situation or specific needs of any particular client of Desjardins Capital Markets. Before making an investment decision on the basis of any recommendation made in this publication, the recipient should consider whether such recommendation is appropriate, given the recipient’s particular investment needs, objectives and financial circumstances. Desjardins Capital Markets suggests that, prior to acting on any of the recommendations herein, you contact one of our client advisors in your jurisdiction to discuss your particular circumstances. Since the levels and bases of taxation can change, any reference in this publication to the impact of taxation should not be construed as offering tax advice; as with any transaction having potential tax implications, clients should consult with their own tax advisors. Past performance is not a guarantee of future results.
This publication may contain statistical data cited from third party sources believed to be reliable, but Desjardins Capital Markets does not represent that any such third party statistical information is accurate or complete, and it should not be relied upon as such. All estimates, opinions and recommendations expressed herein constitute judgments as of the date of this publication and are subject to change without notice.
US institutional customers: Desjardins Securities International Inc. (a wholly owned subsidiary of Desjardins Securities Inc.) accepts responsibility for the contents of this report subject to the terms and limitations set out above. Securities offered in the United States are offered through Desjardins Securities International Inc., member of FINRA (www.finra.org) the US Securities and Exchange Commission and the SIPC. This communication and its contents are for institutional use only. Institutions receiving this report should effect transactions in securities in the report through Desjardins Securities International Inc.
Although each company issuing this publication is a wholly owned subsidiary of Mouvement des caisses Desjardins, each is solely responsible for its contractual obligations and commitments, and any securities products offered or recommended to or purchased or sold in any client accounts (i) will not be insured by the Federal Deposit Insurance Corporation (“FDIC”), the Canada Deposit Insurance Corporation or other similar deposit insurance, (ii) will not be deposits or other obligations of Mouvement des caisses Desjardins, (iii) will not be endorsed or guaranteed by Mouvement des caisses Desjardins, and (iv) will be subject to investment risks, including possible loss of the principal invested.
The Desjardins trademark is used under licence.
© 2021 Desjardins Securities Inc. All rights reserved. Unauthorized use, distribution, duplication or disclosure without the prior written permission of Desjardins Securities is prohibited by law and may result in prosecution.
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