The Enormous Gap in U.S. vs Canadian Profitability and Multiples
The graph displays the five most profitable U.S. and Canadian cultivation & retail companies with market caps over $200 million, and their respective valuation multiples.
The dark green bars represent the consensus 2022 EBITDA margins for the U.S. companies, while the light green bars represent the margins for the Canadian companies.
Each of the top 5 U.S. competitors have margins that are more than double that of Village Farms, the Canadian company with the highest expected 2022 profitability.
Moreover, the U.S companies are already achieving similar margins in 2021 whereas the Canadians require significant advances to achieve their 2022 estimates. Expected 2021 margins for the five U.S. Companies average 91% as high as their 2022 expectations. The Canadians are only expected to have 2021 margins that are 60% as high as their 2022 esitmates.
The orange dots represent the 2022 consensus EV/Revenue multiples. With significantly lower profitability we would expect much lower revenue multiples than we observe. Tilray and Sundial revenue multiples impliy EV/EBITDA multiples of 49x and 65x respectively.
The US companies trade at 2022 EBITDA multiples that range from a low of 6.5x for Trulieve and Verano to a high of 13.1x for GTI while the Canadians trade in a range of 14.7x to 65x.
We have difficulty explaining this gap in valuation given the much higher profitability of the US companies. Even with increased acquisitions of U.S. companies by Canadian companies (requiring legislative/regulatory changes in many cases for full effectiveness), we do not believe this gap is justified or sustainable.