Analysts' Ideas of the Week - This Recent Event to Narrow the Valuation Gap Between Canadian & U.S. Cannabis Stocks - Baystreet.ca
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Analysts' Ideas of the Week
This Recent Event to Narrow the Valuation Gap Between Canadian & U.S.
Cannabis Stocks
April 5, 2021
www.researchfrc.com
Page 2
Reddit Discussed Stocks
Four out of our last five weekly picks generated a positive return. Based on our
review of multiple data points on retail platforms, we note that the Electric Vehicle (EVs)
space continues to be the most actively discussed among retail investors, followed by
Cannabis. This week we are observing strong retail sentiment around Brooklyn
ImmunoTherapeutics, Inc. (NYSE: BTX). Key parameters used may include – a) total
number of mentions, b) percentage change in the number of mentions, c) stock
sentiment, d) stock price trend, and e) market capitalization.
April 5, 2021
Company Ticker Sector
Brooklyn ImmunoTherapeutics BTX Biotechnology
Source: FRC
FRC Top Picks
The following table shows last week’s top five performers among our Top Picks,
including two EV metals juniors, and three technology companies. The top performer,
Banxa (TSXV: BNXA), was up 23% WoW, on rising investor appetite for cryptos. A
recent webinar we conducted on Banxa can be viewed here. Our reports can be
viewed here.
Top Five Performers Last Week
Source: FRC
Overall, our portfolio (equally weighted) was up 10.8% in the past three months
versus the benchmark’s (TSXV) 8.1%.
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Source: FRC
Performance by Sector
Source: FRC
Our complete list of top picks (updated weekly) can be viewed here.
Weekly Mining Commentary
All the global equity indices we track reported gains in the past week (orange bars),
amid optimism of a global economic recovery. As shown below, the unemployment rate
fell again, and consumer confidence increased sharply in the U.S. last month.
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U.S. Unemployment Rate
U.S. Consumer Confidence
Source: FRC / Various
Not surprisingly, base metal prices continued to retreat. We had been predicting a
correction in prices due to rising inventory levels. Although we expect the demand for
base metals to rise with an economic recovery, we believe that prices ran up too
far, too fast in the past 12 months.
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Except the U.S., the U.K., Italy, and Mexico, all of the top 15 hardest hit nations
reported a surge in new cases last week.
Source: https://www.worldometers.info/coronavirus/
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The rollout of vaccines is ramping up across the globe. 31.8% of the U.S. population
has received vaccinations vs 28.0% at the same time last week. This compares to
46.4% in the U.K. (up from 44.4%). We continue to estimate that 50% of the U.S.
population will be vaccinated by June. We note that vaccine growth rates in Israel
and the U.K. have slowed after surpassing 40%. Israel attributes it to vaccine
hesitancy among its citizens, and a failure to reach remote residents. The U.K. has
stated that they are expecting a near-term slowdown due to a vaccine supply crunch.
Sources indicate that at least 70% of the population need to be vaccinated to potentially
achieve herd immunity.
Among the top five most vaccinated countries (as a percentage of total population),
Israel, the U.K., and the U.S. are experiencing a decline in cases. However, Chile and
Bahrain’s surge in cases is concerning. We are closely watching developments in
these two countries.
Source: https://www.worldometers.info/coronavirus/
Inventory levels of copper increased five weeks in a row on the LME and the SHFE
(Shanghai). We continue to expect downward pressure on prices.
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Valuations of gold producers were up 1% WoW, while that of base metals
producers stayed relatively flat last week.
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Source: S&P Capital IQ & FRC
Our price forecasts remain unchanged. We are expecting gold to outperform the
other mainstream metals this year.
In the following section, we review companies that announced key developments in the
past week.
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Mining / Exploration
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Los Andes TSXV: LA $7.80 $13.10 April 1, 2021
Copper Ltd.
PR Content FRC Opinion
Met studies confirmed 91.4% copper Positive – This is very encouraging as the
recovery, and potential for producing high 2019 PEA was based on 91% recovery. The
quality clean copper concentrates from company is currently working on a PFS. The
the Vizcachitas project in Chile. PEA had returned an AT-NPV8% of
US$1.8B at US$3.00/lb copper. LA’s current
market cap is C$201M.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Giga Metals TSXV: GIGA $0.49 $1.01 Mar 30, 2021
Corporation April 1, 2021
PR Content FRC Opinion
Pursuing a $6M financing by issuing Positive – Funds will be used for
common share units and flow-through exploration at the Turnagain nickel-cobalt
units. project in B.C. The company is also
planning preliminary exploration on the
recently acquired copper exploration
permits in northeast Brazil. A recent PEA on
the flagship Turnagain project had
confirmed that the project can produce
nickel concentrate for electric vehicles.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Azarga TSX: AZZ $0.30 $0.79 Mar 30, 2020
Uranium Corp.
PR Content FRC Opinion
An updated M&I resource estimate on its Positive – Gas Hills has potential to be a
Gas Hills uranium project in Wyoming satellite deposit for AZZ’s Dewey Burdock
showed a 128% increase to 11 Mlbs of project in South Dakota. The two projects
U3O8. This resource includes a maiden are approximately 400 km apart. AZZ had
In-Situ Recovery (ISR) resource of 7.71 recently completed a $6M bought deal
Mlbs at 0.101%. The company is planning financing. With federal permits in place, the
to complete a PEA. company needs to just finalize its state
permitting process to commence
construction at Dewey Burdock. A PEA had
returned an AT-NPV8% of US$148M. AZZ’s
MCAP is C$66M. Based on a comparables
valuation, we believe the updated resource
reflects a $0.05 per share increase in
valuation. We will be publishing an update
report shortly, with a revised fair value
estimate.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Panoro TSXV: PML $0.21 $0.77 Mar 31, 2021
Minerals Ltd.
PR Content FRC Opinion
Received another US$750k deposit from Positive – This is part of a financing
Wheaton Precious Metals (TSX:WPM), arrangement totaling US$140M. Wheaton
as part of a metals purchase agreement has paid US$10.75M so far, and an
on the Cotabambas project in Peru. additional US$3.25M will be paid over the
next three years. The remaining US$126M
will be paid in instalments during
construction. PML is a well funded copper
junior, with no need for equity financings in
the near-future due to funding commitments
by partners. Its two advanced stage assets:
Cotabambas (copper-gold) and Antilla
(copper) have a combined AT-NPV7.5% of
US$989M, per PEAs completed on the
projects. Panoro’s MCAP is just $56M.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Sonoro Gold TSXV: SGO $0.19 $0.32 Mar 29, 2021
Corp
PR Content FRC Opinion
Reported results from an additional 12 Positive – These results indicate the
reverse circulation holes completed at its potential for a single large pit for three oxide
Cerro Caliche gold project in Sonora, zones. SGO is pursuing a $2M financing at
Mexico. $0.18 per unit. We believe these funds will
be sufficient to take them through an
➢ 74.67 meters averaging 0.605 g/t Au updated resource estimate, and a PEA. We
➢ 15.24 meters averaging 2.039 g/t, are expecting a significant increase in
including 6.1 meters averaging 3.150 resource estimate.
g/t
➢ 3.05 meters averaging 1.743 g/t,
including 1.53 meters averaging 2.538
g/t
➢ 7.62 meters averaging 1.164 g/t,
including 3.05 meters averaging 2.314
g/t
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Gold Springs TSX: GRC $0.12 $0.30 Mar 30, 2021
Resource Corp
PR Content FRC Opinion
Completed 1,253 m across six holes of a Positive - The project has a measured and
resource expansion drill program (50 indicated resource of 610 Koz gold (0.53
holes / 10,000 m) at its flagship Gold gpt) and 10.8 Moz silver/Ag (9.4 gpt), and
Springs project on the Nevada-Utah an inferred resource of 90 Koz Au (0.49 gpt)
border. Visible gold was identified on one and 1.3 Moz Ag (7 gpt) on four of 32
hole. Initial results are expected in late identified targets on the property. A PEA
April. showed an AT-NPV10% of US$111M, using
$1,450 per oz gold. GRC’s MCAP is $30M.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
CopperBank CSE: CBK $0.61 $1.78 Mar 31, 2021
Resources Inc.
PR Content FRC Opinion
Identified drill locations for its Copper Neutral – The objective of these drill
Creek Cu-Mo-Ag project in Arizona. The programs is to confirm and update the
company will initially target 11 of 20 historical open-pit resource. We believe
distinct prospects. Phase 1 drilling will there is resource expansion potential as
include 12 holes totaling 6,000 m, and only 35 of the 400+ identified breccia pipes
phase 2 will include 13 holes. have been drilled to date. A 2012 resource
study only accounted for eight. Note that
Copper Creek is one of the largest
undeveloped copper porphyry projects in
the Americas.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Wealth Minerals TSXV: WML $0.31 N/A April 1, 2021
Ltd
PR Content FRC Opinion
Announced a $5M financing at $0.165 per Positive – The company’s primary focus is
unit. Each unit will consist of a common on its lithium assets in Chile. We are
share, and half warrant (exercise price of expecting the company to announce details
$0.30 per share for two years). of its exploration plans for 2021.
Technology, Energy, and Special Situations
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Kidoz Inc. TSXV: KIDZ $1.02 $1.08 Mar 31, 2021
PR Content FRC Opinion
Announced 2020 year-end financial Positive – We are very pleased with the
results with $7M in revenue (up 58% results, as revenue beat our estimates by
YoY), and a net profit of $104k / EPS: 20%. We will release an update shortly with
$0.00 (vs $14M net loss in 2019). our revised projections, and fair value
estimate.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Diginex Limited NASDAQ: US$11.51 US$24.70 April 1, 2021
EQOS
PR Content FRC Opinion
Announced the launch of Tether (USDT). Neutral – We are pleased to see Diginex
continuing to add to its offering portfolio.
Tether is the fourth largest crypto by MCAP.
We are maintaining our revenue estimates
for 2021 and 2022 at $10.21M and
$87.15M, respectively (unchanged).
Cannabis
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Halo Collective NEO: HALO $0.10 $0.27 April 1, 2021
Inc.
PR Content FRC Opinion
Announced its 2020 year-end results, Negative – 2020 revenue missed our
with $21.6M in revenue and a net loss of forecast by 17%. We will release an update
$41M (EPS: - $0.07). Management also report shortly. Our current projections do not
announced that some of its software and include the software assets as management
technology assets will be formed into a is yet to disclose details. Therefore, the
standalone company under the name spin-off does not have a material impact on
Halo Tek Inc. Details regarding this our valuation.
process is expected to be released in the
coming months.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Kaya Holdings OTC: KAYS US$0.50 US$0.89 Mar 30, 2021
Inc.
PR Content FRC Opinion
Announced receipt of an initial permit for Positive – We are pleased to see the
its Israeli operations. The permit allows company making progress with its initiatives
the company to develop a cultivation and in Israel. We note that the land for
processing site. Upon development of the operations is yet to be arranged. Our
site, a final license needs to be obtained projections do not include any revenue from
prior to commencing operations Israel before 2023. We maintain our
outlook.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Pure Extracts CSE: PULL $0.46 $0.90 Mar 31, 2021
Technologies
Corp.
PR Content FRC Opinion
Announced that the company has signed Positive – We are pleased to see the
a Letter of Intent (LOI) with Psyence company making arrangements to get into
Group (CSE: PSYG, - a psychedelic the psychedelic mushroom space. However,
mushroom company with operations in we note that cannabis extracts and
Africa), to form a joint venture aimed at functional mushrooms will remain the
extraction of psychedelic mushrooms. company’s near-term revenue drivers.
Psychedelic products are illegal in Canada,
aside from being used in R&D purposes by
drug manufacturing companies. We are
estimating revenue of $1.99M in 2021, and
$7.82M in 2020 (unchanged).
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Grown Rogue CSE: GRIN $0.25 $0.73 Mar 31, 2021
International Inc.
PR Content FRC Opinion
Announced Q1-2021 (quarter ended Neutral – While revenue remained relatively
January 31, 2021) financial results with stagnant YoY, we expect a significant jump
$1M in revenue, and $0.99M in operating in revenue later this year as the company
losses. closes its previously disclosed acquisitions
(grow facilities in Michigan and Oregon, and
a retail store in Oregon). We will publish an
update report shortly.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
AgraFlora CSE: AGRA $0.04 $0.08 April 1, 2021
Organics
International Inc.
PR Content FRC Opinion
Announced that it will be selling off its Neutral – Our valuation does not account
8,800 square foot indoor growing facility for the Ontario facility as management
in London, Ontario for $1M in cash, and noted last year that it was not included in its
retain its Delta facility as the grow-base. core plans. We are estimating revenue of
$1.8M in 2020, and $15M in 2021
(unchanged). We will do an update report
once the company releases its year-end
results.
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Weekly Cannabis Commentary
Cannabis Industry Performance
April 1, 2021
U.S. Companies YTD 1-Week 1-Year
Curaleaf Holdings Inc. 23% 1% 335%
Trulieve Cannabis Corp. 39% -6% 408%
Green Thumb Industries Inc. 18% -6% 436%
Cresco Labs Inc. 30% 5% 394%
Canadian Companies YTD 1-Week 1-Year
Aphria Inc. 155% 4% 466%
Aurora Cannabis Inc. 7% -1% -17%
Canopy Growth Corp. 27% 0% 109%
Cronos Group Inc. 34% 2% 60%
Tilray Inc. 165% 1% 279%
HEXO Corp. 73% 2% 105%
Organigram Holdings Inc. 154% -2% 68%
The Supreme Cannabis Co., Inc. 64% 0% 2%
Canadian Average 85% 1% 134%
U.S. Average 28% -2% 393%
Canadian MIN 7% -2% -17%
U.S. MIN 18% -6% 335%
Canadian MAX 165% 4% 466%
U.S. MAX 39% 5% 436%
Indices
Canadian YTD 1-Week 1-Year
HMMJ 49% 2% 117%
MCAN 44% 5% 125%
XCAN 46% 4% 105%
U.S. YTD 1-Week 1-Year
MSOS 16% 1% N/A*
*Launched on September 1, 2020
Source: FRC / Various Sources
Last week, New York became the 17th state in the U.S. to legalize recreational
cannabis. According to the New York Times, New York’s cannabis market is
estimated to be US$4.6B, and projected to reach US$5.8B by 2027. NY is second to
the largest cannabis market in the world (California). Despite this positive development,
U.S. based cannabis stocks retreated last week due to a Chicago Tribune report
alleging a federal probe into Green Thumb (OTC: GTBIF), regarding possible
violations in securing state licenses in Illinois. The company has denied these
allegations, and stated that it has not received any communication from federal
agencies.
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In a week of mixed performance in the Canadian sector, Canopy (TSX: WEED)
announced that it acquired AV Cannabis Inc. (private company, transaction details
undisclosed). Although we are not able to comment on the valuation, we believe this is
an encouraging development in the sector on two fronts: 1) as we anticipated coming
into the year, we are seeing more consolidations in the industry, such as Tilray
(NASDAQ: TLRY) – Aphria (TSX: APHA), Hexo (TSX: HEXO) – Zenabis (TSX: ZENA),
British American Tobacco (LSE: BATS) – Organigram Holdings Inc. (TSX: OGI), 2) we
are observing more emphasis on cannabis 2.0 brand positioning – a trend that has
picked up over the past few months (for example, Canopy’s /TSX: WEED Martha
Stewart CBD product line launched in Q4-2020).
Valuation
As of April 1, 2021, the Canadian big four LPs are trading at a 119% premium (up
WoW from 106%) over their U.S. peers. We think the higher premium can be directly
attributed to GTBIF’s news.
March 26, 2021 April 1, 2021
Canadian Companies Ticker TEV/Revenue TEV/EBITDA TEV/Revenue TEV/EBITDA
Aphria Inc. TSX: APHA 12.2 114.1 12.7 118.7
Aurora Cannabis Inc. TSX: ACB 8.3 NM 8.3 NM
Canopy Growth Corp. TSX: WEED 29.1 NM 28.9 NM
Cronos Group Inc. TSX: CRON 62.4 NM 63.8 NM
Tilray Inc. NASDAQ: TLRY 20.5 NM 20.8 NM
HEXO Corp. NYSE: HEXO 8.4 NM 8.6 NM
Organigram Holdings Inc. TSX: OGI 12.5 NM 12.2 NM
The Supreme Cannabis Co., Inc. TSX: FIRE 4.7 NM 4.7 NM
AVERAGE 19.8 NM 20.0 NM
MEDIAN 12.3 NM 12.4 NM
MINIMUM 4.7 NM 4.7 NM
MAXIMUM 62.4 NM 63.8 NM
U.S. Companies Ticker TEV/Revenue TEV/EBITDA TEV/Revenue TEV/EBITDA
Curaleaf Holdings Inc. OTC: CURLF 16.8 63.8 16.8 64.1
Trulieve Cannabis Corp. OTC TCNNF 11.7 24.63 11.0 23.1
Green Thumb Industries Inc. OTC: GTBIF 12.4 43.5 11.7 41.1
Cresco Labs Inc. OTC: CRLBF 9.2 36.58 9.6 38.3
AVERAGE 12.5 42.1 12.3 41.6
MEDIAN 12.0 40.0 11.3 39.7
MINIMUM 9.2 24.6 9.6 23.1
MAXIMUM 16.8 63.8 16.8 64.1
Canadian Big Four Average 31.1 31.5
WEED, APHA, TLRY, CRON Median 24.8 24.8
Implied Premium Over U.S. Big Four (Median) 106% 119%
Source: S&P Capital IQ, FRC
The following chart shows the average EV/R of the companies we track in both sectors:
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Average EV/R (October 2019 – April 2021)
Source: S&P Capital IQ, FRC
Canadian Retail Cannabis Pricing
Province (As of 2021/4/5) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price
B.C. $ 9.78 $ 9.88 $ 8.42 201 $ 3.53 $ 15.71
Ontario $ 9.55 $ 9.74 $ 7.93 343 $ 4.00 $ 23.98
Quebec $ 9.32 $ 9.30 $ 9.44 228 $ 4.85 $ 21.68
Alberta $ 11.37 $ 11.40 $ 10.82 353 $ 3.52 $ 22.00
N.B. $ 9.59 $ 9.79 $ 7.49 197 $ 3.57 $ 16.28
P.E.I. $ 9.68 $ 9.71 $ 9.34 168 $ 2.20 $ 23.30
Newfoundland $ 10.05 $ 10.00 $ 10.36 160 $ 4.46 $ 15.40
Yukon $ 16.01 $ 16.42 $ 13.95 6 $ 13.68 $ 22.28
N.S. $ 10.26 $ 10.31 $ 9.71 186 $ 5.36 $ 42.85
Nunavut $ 13.15 $ 13.35 $ 12.41 32 $ 9.43 $ 17.91
Northwest Territories $ 14.68 $ 14.68 2 $ 12.08 $ 17.28
Manitoba $ 11.47 $ 11.40 $ 11.62 358 $ 4.90 $ 20.43
Saskatchewan $ 12.25 $ 12.26 $ 12.07 228 4.40 38.50
CANADA $ 11.32 $ 11.40 $ 10.30
Province (As of 2021/3/29) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price
B.C. $ 9.80 $ 9.90 $ 8.42 199 $ 3.53 $ 15.71
Ontario $ 9.51 $ 9.71 $ 7.93 337 $ 4.00 $ 23.98
Quebec $ 9.30 $ 9.29 $ 9.44 226 $ 4.85 $ 21.68
Alberta $ 11.37 $ 11.39 $ 10.82 351 $ 3.52 $ 22.00
N.B. $ 9.70 $ 9.91 $ 7.49 193 $ 3.57 $ 16.28
P.E.I. $ 9.67 $ 9.69 $ 9.34 168 $ 2.20 $ 23.30
Newfoundland $ 10.08 $ 10.04 $ 10.36 158 $ 4.46 $ 15.40
Yukon $ 16.01 $ 16.42 $ 13.95 6 $ 13.68 $ 22.28
N.S. $ 10.23 $ 10.29 $ 9.63 187 $ 5.36 $ 42.85
Nunavut $ 13.15 $ 13.35 $ 12.41 32 $ 9.43 $ 17.91
Northwest Territories $ 14.68 $ 14.68 2 $ 12.08 $ 17.28
Manitoba $ 11.50 $ 11.44 $ 11.62 354 $ 4.90 $ 20.43
Saskatchewan $ 12.27 $ 12.28 $ 12.07 224 4.40 38.50
CANADA $ 11.33 $ 11.41 $ 10.29
Source: Online Provincial Cannabis Stores, FRC
The average retail price per gram decreased week-over-week, from $11.33 to
$11.32. The chart below shows Canadian retail dried cannabis flower pricing since we
initiated price coverage.
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Canadian Retail Dried Cannabis Flower Pricing
Source: Online Provincial Cannabis Stores, FRC
Canadian Retail Cannabis Stores
As of April 5, 2021, there are 1,798 retail cannabis stores, a week-over-week increase
of 56 stores across Canada; the largest increase was in Ontario (38), B.C. (8), and
Saskatchewan (7).
Nationwide Store Count
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Mar-15-2021 Mar-22-2021 Mar-29-2021 April-5-2021
Geographic Region Store Count Store Count Store Count Store Count Population Population / Store
Alberta 590 593 600 602 4,428,247 7,356
B.C. 308 305 318 326 5,120,184 15,706
Manitoba 64 64 71 71 1,379,121 19,424
N.B. 21 20 20 20 780,890 39,045
N.S. 24 24 24 24 978,274 40,761
Newfoundland 30 30 30 30 520,437 17,348
Northwest Territories 6 6 6 6 44,982 7,497
Nunavut na na na na 39,486 N/A
Ontario 507 534 540 578 14,745,040 25,510
P.E.I. 4 4 4 4 158,717 39,679
Quebec 63 64 66 67 8,552,362 127,647
Saskatchewan 49 58 58 65 1,181,987 18,184
Yukon 5 5 5 5 41,293 8,259
CANADA 1,671 1,707 1,742 1,798 37,971,020 21,118
Source: Provincial Websites, FRC
Weekly Psychedelic Commentary
Psychedelic Industry Performance
April 1, 2021
Company YTD 1-Week 1-Year
COMPASS Pathways plc -24% 9% N/A
Numinus Wellness Inc. -5% -1% N/A
Mind Medicine Inc. -4% 27% N/A
Seelos Therapeutics Inc. 226% 19% 981%
AVERAGE 48% 13% 981%
MIN -24% -1% 981%
MAX 226% 27% 981%
Index YTD 1-Week 1-Year
PSYK -6% 8% N/A*
*Launched on January 27, 2021
Source: TMX Money, FRC
Over the past week, PSYK generated a return of 8%. MindMed (NEO: MMED) reported
its year-end financials, showing $203M in cash to support its drug development efforts.
The company is at pre-revenue stage, and spent $30.5M in operations in 2020.
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