You’re reading a copy of this week’s edition of the New Cannabis Ventures weekly newsletter, which we have been publishing since October 2015.
The largest MSOs have experienced a plethora of favorable news so far this year, including continuing strong top-line and bottom-line financial reports for Q4 and Q1, expanded access to capital, attractive M&A transactions and three states now legalizing in the East through the legislative process, which will enhance longer-term growth prospects.
One potential explanation is that the stocks were too expensive at year-end, which would suggest that the stocks needed some time to grow into their valuations.
Note that all of these companies have a relatively small amount of debt that is offset for the most part by cash, so we are excluding debt and cash from the valuation calculations.
Over the next six months, assuming the estimates hold and the prices don’t change, the average large MSO multiple of one-year out projected EBITDA will be just 12X, which we view as incredibly cheap given the growth rates, even accounting for issues like the 280E taxation.
We think that over the balance of year, MSOs could see their prices rise as investors begin paying closer attention to the 2022 outlook.
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