Over the last year plus, industry players in Colorado have been lobbying the legislature hard to allow for out-of-state ownership stakes that could change the capital raise game and allow many of the companies that have built significant cannabis license portfolios to be on a level playing field with other states like California and Nevada whose ownership laws are less restrictive and, of course, publicly listed Canadian companies with smaller revenues-to-date.
Currently, the larger revenue generating licensees in Colorado have grown under restrictive ownership provisions in the state with privately raised in-state capital and with little liquidity options on the horizon unless HB1011 is passed. And, while operating with little to no margins due to the federal and state tax laws as well as the capital-intensive requirements to build production, processing and retail footprints to bring their products to market, the bill would be a nice shot in the arm for the growing industry in the state.
That could all change if House Bill (HB) 1011 (referred to as the Marijuana Business Allow Publicly Traded Owners) is passed and sets the stage for a slew of public offerings that could generate the badly needed capital that could rival the war chests accumulated by Canadian cannabis companies and begin the inevitable march to nationwide acquisitions and consolidation, even before federal restrictions are lifted. The bill’s prime sponsors include Representative Dan Pabon (D-District 4), Senator Cheri Jahn (Unaffiliated- District 20), Senator Tim Neville (R-District 16).
Sources tell CBE there is no guarantee the bill will pass or even make it to vote before the end of the current legislative session or if the Governor will sign it if it is voted on and passes, but none-the-less, the ramifications are worth exploring.
Currently, valuations of Health Canada licensed cannabis public companies are an encouraging sign to Colorado licensees if HB 1011 passes and becomes law. Many of the public, highly capitalized Canadian players have valuations that I am sure make Colorado cannabis licensee mouth’s water since, in more than one case, their revenues are at least 1.5 x’s that of the largest Canadian concern(s), Canopy Growth.
|Health Canada Licensed Cannabis Public Companies 5/1/18|
|Company Name||Exchange/Symbol||12 Mos. Rev.||Share Price||Market Cap||Revenue||Currency|
|Aurora Cannabis||OTC: ACBFF, TSE: ACB||$31.1M||$6.12||$3.433B||110x||US|
|Canopy Growth||TSX: WEED||$69.8M||$29.49||$5.871B||84x||CN|
|Cronos Group||NASDAQ: CRON||$5.3M||$8.00||$1.410B||266x||CN|
For argument’s sake, let’s throw out Cronos Group’s exorbitant Market Cap/Revenue ratio and use the average of the other 4 companies (59x) and multiply it by the reported revenue numbers as reported by the 2017 CBE’s 200 PPR’s list for several Colorado companies and you get a pretty good idea of the capital raise potential opportunity. Keep in mind that market opportunity varies in the US and Canada due to favorable federal government policy up north, but ultimately any serious player in the Cannabis Industry is looking at total consumer access at home and abroad as part of their long-term strategic plan.
As CBE and others have reported, the Canadians have a head-start here, already in some cases investing in not only US companies but also making plays in Central and South America, The Europe Union and Australia. And, let’s also remember that this is only a barometer based on what’s happening currently with the Canadian companies, but Wall Street insiders have indicated that they are paying attention to their multiples.
For instance, consider the top two comparable vertically integrated companies on the 2017 list, LivWell Enlightened Health and Native Roots as well as Organa Brands and Colorado Harvest Company combined and an estimate of $100M in 2017 revenues or more for each. Just for the fun of it, below is a chart that demonstrates the capital raise possibility for a variety of reported or CBE’s best guesstimate revenue levels for the three as well as other Colorado licensees.
|Potential Colorado Licensee Marketcaps|
|Companies||Revenues||Potential Market Caps|
|LivWell Enlightened Health, Native Roots, Organa Brands*||$100M Plus||$5.90B Plus|
|$50M Plus||$2.95B Plus|
|Buddy Boy Brands, Lightshade, Potco***, Medicine Man, Terrapin Care Station, Tumbleweed||$25M Plus||$1.475B Plus|
*Does not include Organa Brands sister company Colorado Harvest Company
**SweetLeaf is awaiting word as to whether they will lose licenses in the state due to the reported looping violations
*** One of Colorado’s largest license holders, John Fritzel has a stake in Buddy Boy Brands, Lightshade and Potco.
To give a little more flavor to the enormous potential and war chests that these and other Colorado companies would have, TerraTech Corp. (OTC: TRTC) a vertically integrated US-based company with licenses in California and Nevada, currently carries a market cap of $176.23M US on revenues of $35.8M in 2017. That said, they reported an EBITA loss of $16.23M in 2017.
In the last fiscal year, Aphria has reported an EBITA of -$888k, Aurora -$16.02M and MedReleaf -$13.87M.
The current legislative session ends this week in Colorado. If passed, HB 1011 would provide much needed capital to allow key Colorado companies to expand their footprints at home and abroad, subject to local laws and regulations, increased liquidity, to provide employees with the ability to have a stake in the game and to compete with companies based in other US states and companies abroad. It would also go a long way towards increasing transparency at state based companies that go public…so stay tuned.