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.
Friends,
Ahead of its recent public equity offering, Curaleaf suggested that it might raise capital as part of a move to the Toronto Stock Exchange (TSX), and it did end up applying to list there. If it is successful, it will join TerrAscend, the only MSO to move successfully from the CSE to the TSX, a higher exchange in Canada.
While we like to see companies moving to higher exchanges, we think it is not important for an American company to be listed on a higher exchange in Canada. We continue to believe that listing on a higher exchange in the U.S. would be a significant move for MSOs. Of course, ancillary companies and Canadian LPs already trade on the NASDAQ.
TerrAscend had an Investor Day on Friday, and the topic of the TSX listing, which took place in early July, was prominent. The stock is up since it moved from the CSE to the TSX, but it has done poorly relative to peers since the big rally commenced near the end of August on the potential rescheduling of cannabis. Here is the performance with the Tier 1 names since 8/29:
Since then, the New Cannabis Ventures American Cannabis Operator Index has rallied 40.8%, so TerrAscend is also lagging the broader universe of comparable stocks. It has also trailed the broader Global Cannabis Stock Index, which has gained 11.5%.
Of course, this period of time since the elimination of 280E became possible is not the right time-frame to evaluate the role of the uplisting. Looking at the year-to-date return, TerrAscend’s 68.1% gain is better than the 5 largest MSOs:
We don’t think that the uplisting was the driver, though it certainly helped get more investors interested. TerrAscend ended 2022 at an all-time low. It was very attractive at the time, and I included a large position in my model portfolios at 420 Investor at the time. The big driver of TerrAscend recently was the potential rescheduling news.
In our view, investors have been paying too much for TerrAscend, though that now appears to be changing since the peak in early September. For Curaleaf investors, we suggest not looking at the chart to get a clue on where the stock price is headed if the TSX approves the listing. Instead, look at the valuations! Here is the enterprise value to projected adjusted EBITDA for 2024 for the largest 9 MSOs by revenue or market cap:
At just 6.3X on average, all of the MSOs seem cheap, especially if the 280E tax vanishes, but TerrAscend is already very expensive to peers at a 61% premium to the average. The insider buying of TerrAscend has really helped the stock in our view, and the TSX listing is not a major factor. Curaleaf investors should not count on the valuation to expand. In fact, it may contract due to being so high relative to peers.
Again, we think that uplisting in the U.S. from over-the-counter to a higher exchange could be a big deal. Some American investors may care about TSX listing, but not most. When it comes to uplisting in America, we keep our eyes on NASDAQ, of course, but there is an alternate path that could evolve, the CBOE. That exchange, known for options trading, bought the NEO Exchange, which it calls CBOE Canada. The Cannabist Company already trades there, and Verano just announced that it plans to move there from the CSE. It’s not clear when or even if this may happen, but the CBOE listing American cannabis stocks would be a big win for investors.
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Sincerely,
Alan & Joel
