This article focuses on 21 cannabis companies for which we have been able to capture comprehensive investor-related data…and apply a proprietary algorithm to compute relative scores for categories like Growth, PEG, EPS and Revenue Revisions etc..
Once weekly, we run this data for all 5,000+ companies to get relative rankings of any stock against the Universe or its sector or within any peer group we choose such as a portfolio or a group of stocks in an industry like cannabis. For statistical reasons, we apply a maximum score of 100 to all 5,000+ companies, for all calculations.
The above methodology resulted in the following 7 of the 21 cannabis companies having 100 scores for Growth (based on both Revenue and Earnings calculations) and hence receiving a T1 (tied for #1) ranking reflecting the explosive growth in the cannabis industry, particularly in the revenue part of the calculations, if not yet in earnings…
Now let’s examine the scoring of the 21 cannabis companies we reviewed for this article. ( For our purposes today, we used the US stock market tickers for the 21 cannabis companies.)
1. The first illustration is of Growth.
Of the 21 companies, there was insufficient data to calculate scores on 4 but of the 17 we scored, fully 16 of these companies scored more than 79.0, which is outstanding, and is the reason so many investors are watching the industry closely. The lowest Growth score that we found acceptable for investment was Organigram at 79.53…Only Cronos Group (CRON) failed to make the cut on Growth scores.
2. The second illustration is for Price-Earnings Growth (PEG).
Here is where Earnings matter and the fact that only 5 of the 21 companies could be scored shows where investors need to focus. Cannabis companies can either walk the talk that investors want to see, or they cannot.
Of the 5 scored companies for PEG scores, Auxly Cannabis (CBWTF) was best, followed by Acreage, Charlotte’s Web and Organigram. Only CannTrust (CTST) failed to make the cut.
3. The third illustration is for EPS Revisions.
On this EPS Revisions basis, 15 of the 21 companies received a score, but only 3 were acceptable for additional study, Canopy Growth (CGC), Green Growth Brand ((GGBXF) and Hexo Corp (HEXO)…
4. The fourth illustration is for Revenue Revisions.
Of the 16 companies that we were able to score, Kush Bottles (KSHB) received a T1 (tied for the maximum of 100).
…Of these 16 companies, investors would take note that maybe only 6 received scores and rankings that would be acceptable.
5. The fifth illustration is for Valuation, which we based on the consensus analyst estimates of Enterprise Value (EV) to EBITDA and EV to Sales.
None of the companies made the rankings cut, but Harvest One (HRVOF) was close. KushCo and Auxly were the next best in order but clearly unacceptable.
6. The sixth illustration is for Price-to-Earnings Ratio (PER).
Only 6 of 15 companies that we were able to rank scored well. These figures represent the data; however, we take it with a grain of salt. For these leaders, the scores benefited from estimates of 2019 and 2020 earnings that may or, I am sure, may not come true.
7. The seventh illustration is for Market Cap to forecasted EBITDA.
4 companies received a MV/EBITDA score, but in each case ranked terribly. At least the analysts have reported an estimated EBITDA for those companies.
8. The eighth illustration is related to Book Value.
20 of 21 companies were scored. Only Acreage Holdings (ACRGF) did not score.
In the case of Market Price to Book Value analysis, 15 of the 20 scored companies received an acceptable ranking. Green Growth Brand (GGBXF) received a maximum score of 100 (T1 ranking, like many others, in the universe of 4880 companies).
9. The ninth illustration is for Profitability.
All 21 companies received a score based on estimated net income and estimated EBITDA to Sales.
While all 21 companies did receive a Profitability score, none were acceptable. Only Charlotte’s Web (CWBHF) was close with a 1221 ranking out of the universe of 4630 that we were able to score. Aphria (APHA) was second best and CannTrust (CTST) was 4th highest ranked…[which], clearly, was not very good.
10. The tenth illustration relates to Financial Situation.
There are 4 factors we considered: (i) Total Debt-to-Total Equity (ii) EBITDA-to-Interest Expense (iii) Net Debt-to-EBITDA, and (iv) Cash Flow-to-Total Liabilities.
While all 21 companies did receive a Financials Quality score,
- only one was acceptable – Charlotte’s Web (CWBHF)
- 7 more…[had] scores that reflect relatively strong capitalization although that situation may not continue for long if their extremely high burn rates are not appropriately managed.
- Some of the big names, Aurora Cannabis, Cronos Group Inc., General Cannabis Corp., Medmen Enterprises and Green Growth Brand, received very low rankings. Too many liabilities and not enough earnings at this point.
11. The eleventh illustration is of the consensus scoring of all the Analysts who follow the almost 5100 companies that we score and rank on a relative basis each week based on data from Thomson Reuters.
Nineteen of the 21 companies received an Analyst score.
The above scores are not our scores or rankings. We are simply reporting what the industry analysts are reporting, so don’t shoot the messenger…
10 cannabis companies received scores that those analysts consider good or, as we say, acceptable for investing. Perhaps they mean speculating.
In time there will be more analysts covering these cannabis companies, and more companies will be covered. The data, scoring and ranking will continually change. If anything, these analysts, like their legal and accounting colleagues, are likely to become more objective and less corporate finance motivated in their assessments.
12. The 12th and final illustration in our study series is our proprietary composite score for Growth.
On an objective basis, using the raw data at hand, our studies showed that Acreage Holdings (ACRGF), Auxly Cannabis (CBWTF) and Organigram Holdings (OGRMF) are acceptable for detailed study at this point. However, admittedly those particular scores do go against our biases. We report them here because we rank all companies in our 5000+ company universe the same way…
We believe that as the cannabis industry is in the emerging growth phase…our proprietary Technical algorithms will be more important for decision-support reasons for many months to come.