Charles Taerk discusses Canopy versus Aurora
Investors in Aurora Cannabis Inc. and Aphria Inc. are likely to see a surge in volume and higher valuations after the pot stocks list on the New York Stock Exchange, if history is any guide.
Edmonton, Alta.-based Aurora begins U.S. trading Tuesday under the ticker ACB, while Leamington, Ont.-based Aphria filed last week to list but has not yet set a date for its trading debut. The listings come at an inauspicious time, as pot stocks have fallen steadily since the day before Canada legalized recreational marijuana last week. The BI Canada Cannabis Competitive Peers index has lost 21 percent since Oct. 16.
The two Canadian cannabis companies follow Cronos Group Inc. and Canopy Growth Corp. in dual listing on both the Toronto Stock Exchange and a U.S. exchange. Tilray Inc., which trades on the Nasdaq, is unique in not also having a Canadian listing.
A U.S. listing “broadens the universe of potential investors and continues to raise the global profile,” Cam Battley, chief corporate officer of Aurora, said on the company’s earnings call last month. Because marijuana remains federally illegal in the U.S., nearly all publicly traded companies in the sector are listed in Canada, leaving American investors with little opportunity to invest in their home market.
The pent-up appetite of American investors is reflected in the trading volumes of both Cronos and Canopy before and after their U.S. listings.
Cronos, which became the first cannabis stock to list on a the Nasdaq in February, saw its daily trading volume jump from an average of 1.5 million in the week before its Nasdaq listing to a combined 12.8 million the week after, according to Bloomberg data. Canopy’s volume rose from 8.5 million the week before its May listing to 10.3 million after.
Average trading volume on the U.S. exchanges tends to be higher than the stocks’ Canadian listings, with an average of 9.6 million Cronos shares trading hands each day on the Nasdaq versus 3 million on the TSX since its U.S. trading debut.
There are valuation benefits too. In a piece titled "Don’t underestimate the power of a U.S. cannabis listing," Grizzle analyst Scott Willis said U.S.-listed cannabis stocks trade at 37 times enterprise value to 2020 Ebitda versus 12 times for the next eight largest Canadian names.
“This is a massive multiple difference that shows access to U.S. investors is worth all of the cost and effort it takes to obtain a listing,” Willis wrote in a note, adding that he sees 200 to 400 percent upside for Hexo Corp., Organigram Holdings Inc. and CannTrust Holdings Inc. if they follow the lead of their peers and list in the U.S.
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