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.
With Tilray’s shareholders finally approving the merger with Aphria, one of the largest global cannabis companies by market cap has been created.
The pro forma $874 million number included not only the cannabis revenue of the two companies, but also a substantial amount of non-cannabis revenue.
For example, looking at the total revenue of the combined Aphria and Tilray and comparing it to the revenue of Curaleaf, given its slightly higher market cap, might lead one to conclude that the combined company is cheaper on this basis.
In the case of Aphria, for example, the pharmaceutical distribution revenue has been the largest part of the overall revenue.
When companies like Tilray and Aphria own disparate businesses, it makes sense to use sum-of-the-parts analysis to value the overall company.
A great example of the usefulness of this type of analysis is Scotts Miracle-Gro, which is the largest cannabis revenue company that we track in the New Cannabis Ventures Public Cannabis Company Revenue & Income Tracker, where we include only its Hawthorne Gardening revenue and operating income.
It was able to raise substantial capital for the spin-out, Nova Cannabis, which has a very different growth profile from the core business.
Another interesting example of a potentially challenging valuation exercise is TILT Holdings, which is both an ancillary company as well as a direct cannabis operator.
Many investors take short-cuts and look at the overall company valuation metrics even when its businesses can be quite different from one another.
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