- Baked In
- Posts
- 📈 The Begining Of The End 📈
📈 The Begining Of The End 📈
Anthony Varrell
July 19, 2024
GM Everyone,
The comment period is ending, an open convention for the Democrats is brewing, and the pace of cannabis rescheduling could be kicking into high gear. The stars are either aligning for our beloved sector, or we could get bogged down in the infighting within the Democratic Party. I strongly think it’s the former rather than the latter due to the Democrats really needing to stack up wins and catalysts to invigorate voters and create a recency bias. Cannabis is low-hanging fruit. It’s going to get spicy here over the next few weeks, so keep your eyes peeled and stay vigilant.
Today’s letter can be read in 7 minutes and 18 seconds.
What's Driving the Market Today?
Futures are flat even with the Global Tech Outage! Here is the news moving the market:
Global tech outage disrupts operations in various sectors.
CrowdStrike shares tank 15% in premarket due to outage!
Mega-cap tech shares tumble, chipmaker curbs and earnings concerns.
Airlines halt flights amid communications issues.
US Treasury yields rise despite high jobless claims.
VIX hits highest level since April.
💸 High Impact
Discount Shopping For Stocks Can Pay Big
The What - Market Cap / LTM Revenue is a financial ratio that measures a company's market capitalization relative to its revenue over the last twelve months. Market capitalization is calculated by multiplying the company's current stock price by its total outstanding shares.
The Market Cap / LTM Revenue ratio is calculated by dividing the market capitalization by the company's revenue for the past twelve months. This ratio helps investors understand how much they are paying for each dollar of revenue the company generates. A lower ratio might indicate that a company is undervalued, while a higher ratio might suggest overvaluation.
When comparing Market Cap / LTM Revenue ratios among MSOs, investors can identify which companies are trading at a discount or premium relative to their peers. This comparison provides insight into the market's perception of each company’s growth potential and operational efficiency.
Nuances to the Market Cap / LTM Revenue Multiple
While the Market Cap / LTM Revenue ratio is a valuable tool, there are nuances to consider:
Growth Rates: Companies with higher revenue growth rates might have higher Market Cap / LTM Revenue ratios. This reflects investor expectations of future growth. Comparing growth rates alongside this ratio can provide a more complete picture.
Profit Margins: Companies with higher profit margins might justify higher Market Cap / LTM Revenue ratios. A company generating more profit from its revenue is likely more efficient and valuable.
Market Conditions: Broader market conditions and investor sentiment can also impact this ratio. Economic downturns or industry-specific challenges can cause fluctuations.
By keeping these nuances in mind, investors can use the Market Cap / LTM Revenue ratio more effectively, gaining deeper insights into the comparative valuation of MSO cannabis companies.
The Why - While both Market Cap / LTM Revenue and EV/Revenue are valuable metrics for evaluating companies, they have distinct differences that can influence investment decisions. Market Cap / LTM Revenue is simpler and focuses solely on market capitalization relative to revenue, providing a quick snapshot of how the market values a company’s revenue. However, it does not consider debt or cash, potentially overlooking important aspects of financial health. In contrast, EV/Revenue includes these factors, offering a more comprehensive view of a company’s total value and financial position. This makes EV/Revenue more accurate, particularly for companies with significant debt or cash, but also more complex and time-consuming to calculate. Investors should choose the metric that best suits their needs, using Market Cap / LTM Revenue for simplicity and quick assessments, and EV/Revenue for a fuller, more detailed valuation.
Big Takeaway
Market Cap / LTM Revenue can be a helpful valuation metric for determining whether a company is a good value compared to its peers. Typically, it is better to view multiple valuation metrics and blend them to find a valuation price for a company's shares.
Check out our other blogs to help everyone prepare for earnings on topics like:
📈 Dog Walkers
The Cannabist Beefs Up Its Brand Portfolio In New Jersey
The Cannabist announced yesterday that they will be partnering with Old Pal to bring the brand into the New Jersey market. For those who are unaware, Old Pal is a brand that started in California with one main thing in mind: consumer value. They caught fire by bringing value-priced buds to consumers in larger formats, a very simple ethos that caught a major wave. The Cannabist has been integral in the brand's East Coast expansion, and we expect to see incremental markets come online via this partnership structure for the brand.
Nancy Mace Is Our White Knight
Once again Rep. Nancy Mace is showing that she is a true allie of the cannabis industry by introducing an amendment to stifle the backhanded attempt to add language to a spending bill that could impact rescheduling. This amendment has bipartisan support and should neutralize the language that was added to the spending bill.
Ascend Wellness Holdings Secures $235 Million in Private Placement
Ascend Wellness Holdings (CSE: AAWH.U, OTCQX: AAWH) has closed a $235 million private placement of senior secured notes. The funds will be used to support the company's growth initiatives and strengthen its financial position in the competitive cannabis market. This was the one of the largest deals we have seen in quite some time and is a vote of confidence not only for Ascend but also for the industry at large.
🗞️ The News
📭 Research
Initiating Coverage: Green Thumb Industries - Download Here
Reconfirming Buy Rating: MariMed - Download Here
Initiating Coverage Of Verano Holdings Corp. - Download Here
Initiating Coverage: TerrAscend - Download Here
📺 YouTube
Why Marijuana Rescheduling and SAFE Banking Matter?
What we covered:
✅Shadd Dales explains Marijuana Rescheduling and SAFER Banking regulations and why they are essential for the Cannabis industry and the US as a whole. Shad will also explain the following:
1. What is the 280E Tax, and why does it matter?
2. Why is allowing Marijuana companies to up list to senior exchanges like the NYSE and NASDAQ important?
3. The current state of the Cannabis stock industry!