Can the Dramatic Recovery In Capital Raises Continue?
The cannabis capital markets are on fire. Cannabis capital raises of $1.47 billion for the first 5 weeks of 2021 are running ahead of the previous $1.36 billion record set in 2018. Our basket of 25 cannabis stocks is up 146% from the beginning of 2020 and approximately 52% since the beginning of the 2021.
The top 10 U.S. Cultivation & Retail sector companies by market cap, now trade at a median of 22.3x consensus 2021 EBITDA estimates.
So how much better can it get in the cannabis capital markets? All of the top 10 except Harvest, GTI and Trulieve have done equity issues and both GTI and Trulieve have filed registration statements for significant sized issues. So the capital raise boom isn’t over but it may be ready to take a break.
Beyond those top names lies a huge valuation gulf that we believe must begin to narrow to keep the capital raise boom going. The eight Cultivation & Retail sector companies with market caps under $1 billion that have analyst coverage, trade at a median of only 10.47x EBITDA, which is less than half the multiple of their larger competitors.
Will the rally continue? We believe the key is the second tier finding stronger investor interest.