Total Revenue - Cannabis
Cannabis revenue is the revenue generated from the sale of adult-use cannabis products and medical cannabis products via wholesale and retail channels.
Guide to Cannabis KPIs
This guide highlights the key performance indicators (KPIs) for the cannabis industry and where investors should look to find an investment edge. As the market leader in granular consensus estimates data, Visible Alpha works with partners and clients to determine the key performance indicators across multiple industries, including cannabis. While this is not a fully integrated cannabis industry primer, this guide will aid market participants in identifying industry trends and the future performance of cannabis companies, by region and service type.
Cannabis Industry Business Model
In the last two decades, the cannabis industry has grown significantly. Investors have increasingly shown interest and demonstrated participation in several aspects of the cannabis industry, with a key factor fueling the industry growth being the expanding demand for legal cannabis. As cannabis has steadily achieved legalized status in several U.S. states and also international markets, more companies are venturing into cannabis, its research and development, testing, and manufacturing.
Cannabis is a herbaceous plant, and also an umbrella term meant to refer to either marijuana and/or hemp. Cannabis products derived from its leaves, stems, seeds, and other parts can be used for both medicinal and adult-use purposes.
To understand its most popular uses, it is important to first define cannabinoids. Cannabinoids are a large group of chemical compounds found in the cannabis plant. Of these, two of note are tetrahydrocannabinol (THC) and cannabidiol (CBD). THC is what creates the psychoactive effect– aka ‘high’– often associated with cannabis usage, while CBD does not. Instead, CBD is often utilized for health and relaxation purposes in that it offers medical benefits without the ‘high’. Some of the ways cannabinoids can be consumed include: smoking or vaping, ingesting it via drinking or eating, such as in brewed tea or edibles like brownies or candies, eating it raw, applying it as a topical treatment, or taking it as capsules or supplements.
(Sources: Medical News Today, and Investopedia)
The drug marijuana contains the intoxicating tetrahydrocannabinol (THC), and is known for its impairing or mind-altering effects, and causes intoxication. Hemp, on the other hand, contains significant levels of the compound cannabidiol (CBD). CBD has become a popular additive in wellness products, having an array of benefits, from sleep support to pain relief to its calming and anti-inflammatory properties, and more. CBD is often touted for its wide range of health benefits with minimum side effects.
CBD is also increasingly used as a key ingredient in the health and beauty space, with heightened consumer interest in natural products fueling demand for CBD-infused topical formulations, gummies, and capsules, among others.
The two main segments generating revenue for companies in the cannabis industry are:
- Medical vs. Recreational/Adult-use Cannabis
- Retail vs. Wholesale Distribution of Cannabis
Medical Cannabis: This refers to the use of cannabis as a physician-recommended treatment for certain health conditions and symptoms. Medical cannabis generally has a higher CBD concentration and a lower THC concentration. The current applications for the medical use of cannabis include:
- Chronic pain management
- Insomnia
- Anxiety
- Healing after traumatic injuries
- Regulating seizures
Recreational/Adult-use Cannabis: This refers to the use of cannabis for its recreational or intoxicating properties rather than for health purposes. Adult-use cannabis has a higher THC concentration, consumed for its psychoactive effect. Adult-use cannabis products include:
- Edibles and beverages
- Vapes, vape cartridges, and pre-rolls, among others
Adult-use cannabis also includes the use of CBD-based products known for their relaxation properties and for other health benefits that may not necessarily include medical treatment or a physician’s recommendation. Such products include:
- Topical creams
- Concentrates, CBD-infused oils
- CBD-infused beauty and personal care products, among others
Cannabis Retailing: Cannabis retailing involves the sales of cannabis to end-consumers at retail stores and ecommerce platforms.
Cannabis Wholesaling: Cannabis wholesaling involves the sale of cannabis from licensed producers to companies manufacturing cannabis products. These sales are generally high-volume transactions at lower prices.
CANNABIS INDUSTRY REVENUE DRIVERS AND KEY METRICS
Companies in the cannabis industry generate revenue primarily from the volume of cannabis sold (kg/gram) and the average selling price (ASP) of cannabis per unit ($/gram or $/kg). This is applicable for both medical and adult-use cannabis segments.
Companies report both GAAP and fair value adjusted numbers for the cost of goods sold (COGS). Analysts primarily use the fair value of COGS for peer comparisons, which is generally adjusted for the aggregate gain/loss in the fair value of biological assets and inventory.
Gross margin and EBITDA margin are key profitability indicators that analysts look at in conjunction with valuation multiples like enterprise value / sales and enterprise value / EBITDA. Other useful operating metrics include acreage, production volume, cannabis sold (adult-use/medical), average selling price (ASP), number of stores, among others.
The cannabis industry requires large capital investments and cash flows to increase production capacity, expand product ranges, and fund operations. Free cash flow is one of the indicators that analysts track to understand the amount of cash flow required to maintain and expand.
Key performance indicators (KPIs) are the most important business metrics for a particular industry. When understanding market expectations for Cannabis, whether at a company or industry level, some KPIs to consider are:
Visible Alpha’s Standardized Industry Metrics
To understand market expectations for the Cannabis industry, a key information source is sell-side analyst estimate and consensus forecast data. The buy-side, sell-side, and public companies leverage this type of data to conduct competitive analysis, a type of analysis conducted by professional analysts that involves comparing standardized metrics of one company with those of similar companies. Because companies report metrics differently – and sometimes report on different metrics altogether – standardizing the key metrics for each company can be a cumbersome process.
Visible Alpha Insights includes analyst data, company data, and industry data at a level of granularity unparalleled in the market. Our industry data – Standardized Industry Metrics – enables market participants to quantify and compare market expectations for companies across 150+ industries.
Data as of January 2023
14
Global Tickers
113
Current Analyst Excel Models
44
Proprietary line items in our standardized operating metrics data
21
Contributing Brokers
242
Total standardized line items
198
Proprietary line items in our standardized financials data
Visible Alpha offers five cannabis-related comp tables, comparing forecasts for key financial and operating metrics, to make it easy to quickly conduct relative analysis. Every pre-built, customizable comp table is based on region, sub-industry, or key operating metrics.
- Canopy Growth Corp (WEED_CA)
- Aurora Cannabis Inc (ACB_CA)
- Cronos Group Inc (CRON_CA)
- Tilray Inc (TLRY_CA)
- HEXO Corp (HEXO_CA)
- Organigram Holdings Inc (OGI_CA)
- The Green Organic Dutchman Holdings Ltd (TGOD_CA)
- Curaleaf Holdings Inc (CURA_CA)
- Cresco Labs Inc. (CL_CA)
- Green Thumb Industries Inc. (GTII_CA)
- Columbia Care Inc (CCHW_US)
- Trulieve Cannabis Corp (TRUL_US)
Industry KPI Terms & Definitions
Total Cannabis Revenue
Cannabis revenue is the revenue generated from the sale of adult-use cannabis products and medical cannabis products via wholesale and retail channels.
Total Medical Revenue
Total medical revenue represents the revenue generated from the sale of cannabis as a physician-recommended therapy for the treatment of certain health conditions and symptoms.
Total Adult-Use / Recreational Revenue
Total adult-use / recreational revenue is the revenue generated from the sale of cannabis products such as rolls, CBD-infused oils, vaporizers, beauty, wellness, sleep products, sports nutrition beverages, merchandise that are sold to consumers through a company’s network of retail stores and e-commerce platforms.
Average Selling Price (per grams)
Average selling price (per grams) is a pricing metric, which analysts look at to compare a company’s pricing power and performance.
Average Net Selling Price
Average net selling price is the average net sales price of cannabis sold in a region. It is calculated by dividing the net sales of cannabis in a region by the number/units of cannabis sold in that region. Analysts look at pricing metrics such as average net selling price to analyze a company’s pricing power and performance.
Adjusted COGS / COGS excluding Fair Value Adjustment
Adjusted COGS includes changes in the fair value of the inventory sold and the unrealized gain/(loss) on changes in the fair value of cannabis. COGS also includes product costs and costs related to the products acquired from other suppliers.
Cannabis, categorized as biological assets in a company’s balance sheet, is recorded at fair value at the time of harvest, minus the selling costs. These costs are transferred to inventory and become the carrying value on a go-forward basis. When the inventory is sold, the fair value is relieved from the inventory and the amount is expensed to the cost of goods sold (COGS).
Adjusted Gross Margin
Adjusted gross margin is calculated by dividing adjusted gross profit by cannabis net revenue.
Adjusted Gross Profit
Adjusted gross profit is the gross profit based on the cost to produce, package, and ship inventory sold, exclusive of any fair value measurements.
Adjusted EBITDA
Adjusted EBITDA is EBITDA adjusted for the fair value adjustment, several one-time, irregular, and non-recurring items.
Hemp
Hemp is a form of cannabis plant that contains 0.3% of tetrahydrocannabinol (THC) or less. Hemp is usually grown in a way that maximizes size and yield and is widely versatile in its uses; including textiles, paper, food, building materials, body care, and more. Cannabis retailers typically sell CBD products made from hemp, as it is legal across the U.S. and in most other countries as well.
Legal Marijuana
Legal marijuana contains more than 0.3% of tetrahydrocannabinol (THC). Marijuana can be sold for either medical or Adult-use purposes (depending on local laws). The legality of marijuana is much more complicated, usually coming down to whether it’s being sold for medicinal purposes or not – with medical marijuana currently legal in only 33 U.S. states.
Indica, Sativa and Hybrid Cannabis
Cannabis comes in two main forms: Cannabis Indica and Cannabis Sativa. Buds from an Indica plant are typically sold as medical marijuana to patients looking for a relaxant. On the other hand, buds from a Sativa plant are usually sold for recreational or adult-use purposes because they tend to be intoxicating. When the two plants are crossbred, it creates a hybrid that may come with the effects of both types of plants depending on which is dominant.
Cannabis Sold (kgs)
Cannabis sold represents the amount of cannabis sold in terms of volume.
Medical Cannabis Sold (kgs)
Medical cannabis sold (kgs) represents the amount of cannabis sold in terms of volume for medical purposes.
Adult-use / Recreational Cannabis Sold (kgs)
Adult-use / recreational cannabis sold (kgs) represents the amount of cannabis sold in terms of volume for adult-use purposes.
Production Capacity
Production capacity is an estimate of the maximum output or volume of cannabis that can be produced by a company in the cannabis industry. It is derived by considering the historical output of cannabis and the existing cultivation expertise within a company.
Kilogram Produced
Kilogram produced is the kilograms of cannabis harvested, representing the amount of dried gram and dried gram equivalents harvested and produced from biological assets but not necessarily sold during the period.
Excise Taxes
Excise taxes are imposed on the first sale or transfer of cannabis from a retail marijuana cultivation facility to a retail marijuana store.
Legalization
List of countries that have legalized cannabis (as of October 2021):
Legalized for Medical Purposes
Argentina, Australia, Barbados, Bermuda, Brazil, Canada, Chile, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, Finland, Georgia, Germany, Greece, Ireland, Israel, Italy, Jamaica, Lebanon, Lithuania, Luxembourg, Malawi, Malta, Mexico, Morocco, Netherlands, New Zealand, North Macedonia, Norway, Panama, Peru, Poland, Portugal, Rwanda, Switzerland, Thailand, United Kingdom, Uruguay, Vanuatu, Zambia, Zimbabwe
Legalized for Adult-Use
Canada, Uruguay, Georgia, Mexico, South Africa, Australia*, Argentina*, Austria*, Belgium*, Chile*, Colombia*, Costa Rica*, Israel*, Italy*, Luxembourg*, Malta*, Peru*, Spain*, the Netherlands*, the U.S.*
U.S. Cannabis Regulations
- Cannabis illegal under Federal law
- Medical Cannabis legal in 36 U.S. states
- Limited THC-content medical cannabis legal in 12 U.S. states
- Adult-use cannabis legal in 18 U.S. states
- Cannabis use decriminalized in 13 U.S. states
*Decriminalized
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Guide to Cannabis KPIs for Investment Professionals
This guide highlights the key performance indicators for the cannabis industry and where investors should look to find an investment edge, including:
- Cannabis Industry Business Model & Diagram
- Key Cannabis Metrics PLUS Visible Alpha’s Standardized Industry Metrics
- Available Comp Tables
- Industry KPI Terms & Definitions
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