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 newsletter includes unique insight to help our readers stay ahead of the curve as well as links to the week’s most important news.
With the big run-up in stock prices over the past few months, we spent some time assessing MSO valuations for subscribers at 420 Investor recently. As we reviewed analyst forecasts for 2021 and 2022 for reasonableness and to get a sense of market expectations, we appreciated the many inputs one must consider. Future market revenue will depend upon the rate of conversion from the illicit market in each state as well as the ability to attract new consumers, the propensity to expand production capacity in existing markets that are currently limited and the rate of new markets opening. Company revenue will also depend upon pricing and market share as well as the ability to expand distribution. The analysts also have to judge profitability, assessing the cost of production and pricing for each market. Beyond EBITDA, analysts need to forecast tax-rates and interest costs, both of which are currently insanely high but will hopefully be lower down the road.
As we were doing this exercise, we realized that there is another huge driver of future growth potentially: acquisitions. In mid-December, we suggested that mergers were going to be a big theme in 2021, and this has certainly been the case so far. Many investors in this environment focus on investing in companies ahead of acquisition. Indeed, publicly-traded Bluma Wellness and Liberty Health Sciences have both agreed to be bought by other public companies recently. In Canada, Tilray, Trichome Financial and Zenabis all have pending mergers with other public companies. While we expect there could be more