Cannabis/Marijuana Companies: What do the numbers say?
Opdateret: apr. 20
I have previously looked through the numbers on various companies in the solar sector and the video game sector. Another sector that is often considered to do good in the future is the cannabis sector. Instead of making an analysis of a single company, I have decided to go through the historical numbers of the companies that trades at my broker.
This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me.
This post will be a bit different than my usual posts. I will not do an analysis of a specific company and calculate a buy price, as I have previously done. In case you have missed it, you can read my latest analyses about Ambev or PulteGroup. I have opened positions on both of the aforementioned companies based on my analysis and calculated buy price.
I do not directly own any companies in the cannabis/marijuana sector. However, as I have a position in Altria Group (MO) , I indirectly own Cronos. I don't have any specific knowledge about the cannabis sector, which is one of the reasons I don't have a position in any of the companies. Hence, this analysis is only looking at the numbers, as I don't know which companies have a moat or good management. In case you want to open any positions in any of the companies, I advice you to do your own analysis on the company you are interested in. As I don't know the sector that well, I might have missed some of the companies that trade on eToro, if that is the case, I do apologize. The companies I will look into are: Aphria (APHA), Aurora (ACB), Canopy (CGC), Cronos (CRON), Hexo (HEXO), Organigram (OGI) and Tilray (TLRY). As I don't know the sector that well, you might not be able to compare the companies one to one, as I don't know where they differentiate from each other.
It is a sector that is expected to do great, as more and more countries and states are legalizing marijuana. According to a market analysis report from Grand View Research, the global legal marijuana sector is expected to have a compound annual growth rate (CAGR) of 18,1% until 2027. If that turns out to be true, the cannabis/marijuana sector is certainly a sector that is interesting for most investors.
In this post I will look through the historical performance of the cannabis/marijuana companies that I found trading on eToro, as historical performance is an indication of how it will perform in the future. Keep in mind that I'm only looking at the numbers, and this post is not considered to be an analysis of the companies. It is just in order for you to get some context.
The first number we will look into is the return on investment capital, also known as ROIC. We want to see 10 years of history and we want the numbers to be above 10 % in all of the benchmarks. As you see most of the companies do not have 10 years of history, however it is just two out of the seven that have less than 7 years of history. The ROIC is hardly impressing for any of the companies, judging on ROIC alone there can be no questions that Cronos is the best company, as they at least have some positive numbers. All of the other companies have a very disappointing ROIC.
The next numbers we will look into are the Sales Growth Rates. We would like the Sales Growth Rate to be above 10 % in all benchmarks and ideally we would like to see the numbers increase in every benchmark. In general all of the companies show fantastic results. Cronos has some underwhelming numbers in their oldest benchmarks but have certainly performed well in their newest benchmarks. Aphria shows solid to fantastic numbers in all benchmarks and the same can be said about Aurora, Canopy and Hexo, even though Hexo has less of a history than the others. While Organigram has shown some fantastic numbers, it is curious that they underperform compared to the other companies in the newest benchmark. Tilray has very little history but judging from the little history they have, their Sales Growth Rate is certainly great.
The next numbers are the EPS Growth Rates. As with all other growth rates we want the numbers to be above 10 % in all benchmarks. Most of the companies follow the same pattern, they have great historical numbers (Cronos and Aphria have a bad benchmark each), while the last benchmark has been horrendous., especially for Organigram and Aurora. Tilray is the only company that performs well in the latest benchmark but they of course have less of a history.
The Equity Growth Rate is the most important of the growth rates. As always we would like to see that the numbers are above 10 % in all of the benchmarks, and ideally it should be increasing. Historically all of the companies perform well. However, in the latest benchmark, you only see Tilray and Aphria being in positive. Aurora, Canopy and Hexo all show very bad numbers in the latest benchmark, while Cronos and Organigram are underwhelming.
The final numbers we look into are the Cash Growth Rates. Once again the companies follow the same pattern by all showing great numbers historically. Aphria is the only company that has a negative numbers in the 3 years benchmark, while also having a negative numbers in the latest benchmark, as do Canopy, Cronos and Organigram. The two youngest companies Hexo and Tilray show positive numbers in all of the benchmarks but they obviously also have less history.
Another important thing to look into is debt, and we want to see if a business has a reasonable debt that can be paid off within 3 years. We do so by dividing the total long-term debt by current cash flow. Here is where it gets interesting, as one company stand out from the others. All of the companies except one have a debt that takes more than 10 years to pay off. The only company with no debt at all is Cronos.
We have now gone through all of the numbers of the companies. It is quite surprising to see that the companies resemble each other in the growth rates. Of course, there were some differences in various benchmarks but overall, they pretty much resemble each others overall. Meaning there are two numbers that make one company stand out from the others and that is ROIC and debt. Looking at these two things, I believe that based on the numbers, Cronos would be the best company to invest in. As I mentioned previously, I'm already indirectly invested in Cronos through Altria but that haven't biased my analysis at all, as I have only been looking into the numbers.
Remember that you should not invest in a company based on the historical numbers alone. You would need to further investigate the companies in order to see if they have a moat and good management. Once you have done so, you would also need to calculate a buy price, in order to be sure that you buy it at a good price. I haven't made any research on the companies yet, as I don't have much knowledge about the sector. However, it is a sector with great potential and it may be something I will start to study. Obviously, the first company I would look into would be Cronos.
I am available to copy but if you do your own trades, you can follow me instead or check out my portfolio every now and then. If you believe we are facing a volatile period in the stock market, I did share some of my other investment ideas in order to build your wealth in this post. I hope that you will find inspiration.
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