Thursday , 9 July 2020

Cannabis Central: An Analysis Of U.S. Multi-State Operators

The most important thing you can do as an investor is to separate the exciting story and hype [of a company] from the actual financial results. This article provides you with some useful data so you can make more informed choices about which U.S. multi-state operator (MSO) is worth a potential investment.

All of the companies analyzed below have an exciting story to tell, but the decisions they are making today about growth in their share count, asset footprint and revenue will determine if their share price is going up, down, or sideways over the next few years. #munKNEE/Money!

[To determine] which U.S. operator is worth a potential investment [it is imperative that the following issues be evaluated:


…Due to legal restrictions in the U.S. and listing restrictions in Canada, many U.S. operators have created an alternate share class that holds almost all of the corporate voting power…These special voting shares are not freely traded and so the owners of these shares, almost always insiders, have free reign over how the company is managed. They can pay themselves big bonuses, go on buying sprees while diluting common shareholders or invest in new businesses that are not a good fit for the company and common shareholders can do nothing about it.

Source: SEDAR, Grizzle Estimates *TILT is converting all special voting shares to common by the end of 2019

Bottom line: When you are choosing a U.S. operator look for one where the majority of votes are in the hands of common shareholders.


…Company management believes:

  1. that, with limited licenses granted in all medically legal states, there are excess profits to be generated before cannabis is legalized countrywide and
  2. that being an early entrant into a state lets you establish brand recognition, translating into a higher market share as the number of users and sales revenue expands with legalization.

If you believe these two arguments then the more states and the more retail locations the better.

Source: SEDAR, Grizzle Estimates


Investors often forget the importance of cash when they are investing in a high growth industry.

Even though licensed producers are seeing rapid revenue growth, they are not yet profitable and still need to spend millions to expand capacity to meet demand. Cash is king.

The chart below looks at each company’s cash balance in the latest quarter and their cash burn from operations plus their spending on construction of new greenhouses. We exclude cash spent on investments because these can be cut back if the company faces a cash crunch.

This metric is really to see the cash available in a distressed situation if funding from the stock market dried up. Most of these companies currently have plans to burn through their cash balance in less than 12 months.

Source: SEDAR, Grizzle Estimates


U.S. operators are so early in the build out of their assets that traditional valuation measures are not very useful. The two best metrics we’ve found to compare how the market thinks about each company is a price to sales ratio and sales per shares.

  • Price to Sales: All the companies are generating positive sales even if net income and EBITDA, a measure of cashflow, are negative….

Without positive earnings to go off of, price to sales provides us with a reliable number comparing which companies are priced at a premium or a discount by the market.

  • Sales per Share is the most useful piece of the puzzle as investors try to figure out which company will generate the best stock market return.

The chart below shows you which company is generating the most revenue per share for investors based on 2019 estimated sales.

Source: SEDAR, Grizzle Estimates

Looking at the chart above, Acreage is an outlier because it was able to build a large footprint using private money and raised over $300 million in a recent IPO, funding some of the future growth.

The company will have to issue more shares to complete its entire 14 state build-out bringing it more in line with peers over 2019.

Source: SEDAR
US Marijauana Companies Fully Diluted Market Cap-2Source: SEDAR, Google Finance


Hopefully, the above analysis provides you with some useful data so you can make more informed choices about which U.S. operator is worth a potential investment.

More interested in the Canadian cannabis market? Then read this article.

Editor’s Note: The above  original article by Scott Willis of  has been re-formatted, color highlighted, edited ([ ])* and abridged (…) by Lorimer Wilson, editor of – Your KEY To Making Money! – for the sake of clarity, and brevity to provide a fast and easy read.

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(The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.)