Best Pot Stock: Canopy Growth Or Tilray?

by Vishesh Raisinghani

With the unbelievable run up in prices for both Canopy Growth (CGC) and Tilray (TLRY) in recent months, it’s probably a good time to compare the two companies to put the weed stocks in perspective.

Before I go any further, let me just say that these two companies couldn’t be more different. On paper, they’re both Canadian weed stocks that are on the verge of something big. Some estimates suggest that the global pot market could be worth $220B by the year 2030. In anticipation, investors seem to have pushed the valuations of everything that remotely smells like ganja to prices that would make Satoshi Nakamoto blush.

Nevertheless, if you dig just an inch deeper, you’ll discover that Tilray and Canopy are not in the same position. One of them is clearly a better bet:

https://www.youtube.com/watch?v=Yhq-lEFpYYw

Summary ~Tilray trades at 500x sales. ~The gold standard in the overhyped weed market is Canopy Growth which has $4.5B in cash and trades at only 114x sales. ~Investors should probably wait for the insanity to die down before buying at reasonable prices." class="Facebook mini postToFacebookFeed">

Stock wars 5: Canopy growth corp vs Tilray

https://www.youtube.com/watch?v=Yhq-lEFpYYw

Deceptive Valuations

At current market prices, both Tilray and Canopy trade at more than 100x their annual revenue. Just to clarify, that’s revenue not profits, because they both make a loss. But here’s the thing, Canopy’s stock price is 144x sales, which is crazy enough, while Tilray trades at a mind boggling 576x sales.

If you truly believe weed is the next alcohol or big tobacco, the average price-to-sales in those industries hovers around 5x. Which means Tilray would have to grow sales 100 times over the next few years as weed gradually becomes legal in more parts of the world to reach a mature valuation. In the trailing twelve months, it has earned just over $28 million in sales.

What does Tilray have to power that growth to billions in revenue? Not much. The company has about $25.3M in cash, $65M in property, and nearly $71.2M in total liabilities (including $37m in debt facilities from owner Privateer Holdings).

Compare that to Canopy Growth’s more than $4B in firepower from Constellation’s (NYSE:STZ) recent investment, 500,000 square feet of GMP-certified production space, Tweed brand partnership with Snoop Dogg, and operations in more than 11 countries. You can clearly see why Canopy is the gold standard in the global weed market. Although it’s too early to pick a winner yet, I’d be more willing to pour money into a company with owned operations in five continents, permissions to open retail stores in various Canadian states, and access to the distribution network and resources of one of the world’s largest beer companies.