The Viridian Cannabis Stock Index began the week ended February 24 by rising through Wednesday, February 22 before falling Thursday afternoon and Friday following comments by White House Press Secretary Sean Spicer alluding to potential Federal crackdown on state-legal recreational cannabis businesses. 80% of the stocks in the Index declined on Thursday, February 23, whereas 92% of the stocks in the Index declined on Friday, February 24. We saw a spike in volume on Friday following Spicer’s comments, but it was still in line with the range of daily dollar volumes seen in the past three weeks.
This week, ended March 3, 2017, we saw a slight bump on Monday, February 27. However, following this initial pop, “The Spicer Effect” continued, leading the Index to decline slightly through the end of the week to finish the week down 2.7%. For the week ended March 3, 2017, 68% of the stocks in our Index declined, fewer than in the week Spicer made his announcement.
Returns between the sectors remain mixed, particularly within the Ancillary Products & Services segment due to greater variations in business models between the sectors in this segment.
The Ancillary Products & Services segment has outperformed the “Touching the Plant” segment YTD, up 23.5% and 13.1%, respectively, though the gap between these two segments’ YTD returns has been closing. Additionally, sectors in the “Touching the Plant” segment trade at a premium to those in the Ancillary Products & Services segment, driven primarily by the Biotech/Pharma sector. The YTD outperformance of the Ancillary Products & Services segment is likely due to the dramatic appreciation in stock prices and valuations in the “Touching the Plant” segment leading up to and following the positive results from the US elections this past November as well as Canada’s progression towards a national, recreational market.
We expect there to be continued volatility in these multiples in the short- to medium-term. However, in the long-term, we expect these multiples to decrease towards values seen in more mature sectors in the industry. For example, the lowest multiples in the Index are those of the Hemp, Agriculture Technology, and Consumption Devices sectors; hemp food and industrial products, systems and technologies for cultivation, and various smoking devices have been around for much longer than the legal medical and recreational cannabis markets.
Index Performance for the Week Ended March 3, 2017
The Viridian Cannabis Stock Index fell 2.7% in the ninth week of 2017 ended March 3 following its decline the week prior. The Index rose slightly the first day of the week before sliding through week’s end.
Three of the four major market indices listed increased over the week, with only the Russell 2000 declining. The Index as a whole and both the Ancillary Products & Services and “Touching the Plant” segments underperformed these indices.
For the week, just two of the twelve Index sectors showed positive gains. The top performing sectors for this week were Consumption Devices (up 3.2%) and Investments/M&A (up 0.7%), while the worst performing sectors were Physical Security (down 22.6%), Software/Media (down 8.7%), and Hemp (down 8.7%).
Weekly Snapshot: Index Median Price-to-Sales (P/S) Multiples
The multiples are calculated by dividing the market capitalization of each security in the Index at close of market on final trading day of the week by their respective trailing-twelve-month (TTM) revenue figures (pulled from the four most recent quarters). These multiples are then categorized based on the companies’ segment/sector in the Index, and the median multiples from these groups are pulled for the snapshot.
The median P/S multiple for the Index was 42.2x as of March 3, 2017, a slight increase from 39.5x as of February 24, 2017, and from 37.9x as of February 17, 2017.
The increase in multiples is due to new financial information that has been filed and released over these past couple weeks. Updated data detailing revenues and shares outstanding has led to upward changes in multiples even while stock prices in the Index have fallen.
Index Performance Year-to-Date (YTD)
The Viridian Cannabis Stock Index has started 2017 strong. The Index appreciated relatively smoothly through the month of January before reaching its highest point year-to-date, up 38.2%, on February 1. The Index slid over the following six trading days (through February 9) before rebounding slightly on February 10. The Index continued rising until February 23 when it declined sharply following White House Press Secretary Spicer’s comments that signaled a potential Federal crackdown on recreational cannabis. The Index rebounded slightly on February 27 but slid over the next few days to close the week up 17.8% YTD as of March 3, 2017.
The Ancillary Products & Services segment has outperformed the “Touching the Plant” segment, up 23.5% and 13.1% YTD, respectively, though the gap between these two segments’ YTD returns has been closing. The outperformance by the former segment is likely due to the dramatic appreciation in stock prices and valuations in the latter segment surrounding the positive results from the U.S. elections this past November as well as Canada’s progression towards a national, recreational market.
Dollar volume in the Index started strong in 2017 but declined late in the first week of trading, adding further evidence to the January Effect as investors completed much of their repurchases in the first few trading days of the year. Through the second week of the year, dollar volume in the Index remained at similar levels as were seen in the first week.
For the third week of 2017, dollar volume in the Index was low on January 16 due to Martin Luther King, Jr. Day in the United States but normalized on January 17 to between approximately $75 and $125 million dollars per day as the US markets reopened and the Index continued appreciating. Through the fourth and fifth weeks of the year, dollar volume in the Index slid from approximately $125 million to $75 million as a handful of the more highly traded stocks in our Index saw reduced trading volume.
Dollar volume in the sixth week of 2017 was the highest we had seen YTD, with nearly $825 million traded between February 6 and February 10. This was also the first week of the year thus far wherein daily dollar volume was above $125 million on every day of the week. Dollar volume in week 7 surpassed that of week 6, setting a new YTD record of over $971 million traded, 17.8% more than in the week prior. Additionally, a new single-day YTD dollar volume record of nearly $254 million was set on February 15.
Average daily dollar volume in week 8 was similar to that of weeks 6 and 7, but total dollar volume was lower due to the Presidents’ Day holiday in the United States. Dollar volume rose on Friday, February 24 due to a sell-off triggered by Sean Spicer’s comments, but abated slightly at the beginning of week 9. Week 9 began with dollar volume greater than was seen at the beginning of the year ($75 to $125 million per day) but less than was seen in the beginning and middle of February ($125 million+ per day).
The performance of the Viridian Cannabis Stock Index, as a whole and by sector, as well as in comparison to several major market indices, is detailed in the table below:
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The information contained herein is for informational purposes and is not intended as a research report. It should not be construed as Viridian recommending investment in cannabis companies or as a solicitation to buy or sell any security or engage in a particular investment strategy. Investment in cannabis companies entails substantial risk. Before acting on any information, you should consider whether it is suitable for your particular circumstances and consult all available material, and, if necessary, seek professional advice.
Viridian Capital Advisors and its affiliates, as well as their respective partners, directors, shareholders, and employees, may have a position in the securities mentioned herein and may make purchases and/or sales from time to time. Viridian Capital Advisors, through broker-dealer services provided by Pickwick Capital Partners, LLC, Member FINRA/SIPC, may act, or may have acted in the past, as a financial advisor for certain of the companies mentioned herein and may receive, and may have received, a remuneration for their services from those companies.
About the Viridian CANNABIS STOCK INDEX
The Viridian Cannabis Stock Index tracks the performance of approximately 50 publicly traded cannabis companies that meet three of the following four filter criteria:
- Market capitalization ? 10,000,000 USD
- Average daily trading volume ? 20,000 USD
- Float ? 25% of shares outstanding
- Financials filed on time in last 6 months
Stock performance is categorized into 12 different product/technology sectors that comprise the core business segments within the legal cannabis industry. These sectors are further differentiated into two segments, those that “touch the plant” and those that are providers of ancillary products and services.
Our Index is NOT a tradable or investable instrument and is not intended to be deemed or treated as such. All data and information contained in the Index is for reference and/or informational purposes only.
The above information, whether in part or in its entirety, neither constitutes an offer nor makes any recommendation to buy or sell any securities.
About Viridian Capital Advisors, LLC
Viridian Capital Advisors is a is a financial and strategic advisory firm dedicated to the cannabis market. We are a data- and market intelligence-driven firm that provides investment banking, M&A, corporate development, and investor relations services to emerging growth companies and qualified investors in the cannabis sector. Our banking practice, through broker-dealer Pickwick Capital Partners, Member FINRA/SIPC, provides capital and M&A to fund the growth of our clients, while our advisory practice helps to position and build their businesses. Our team’s decades of high level operating and transactional experience on Wall Street in a variety of emerging sectors, allows Viridian to provide comprehensive strategic and financial solutions that assist cannabis enterprises in realizing their full potential.