True Valuation of Tier-2 & 3 Cannabis MSOs, According To Viridian Capital Advisors

The chart explores the relative credit quality and valuation of the eight public U.S. cannabis muti-state operators (MSOS) with market caps over $20M and coverage from fewer than two sell-side analysts.

The green line shows the Viridian Capital credit ranking of the group ranging from one (best) to eight (worst). The red, purple, and orange lines represent the Viridian model leverage,  liquidity, and profitability sub-rankings. The blue bars depict enterprise value / annualized revenues.

  • Although we are uncomfortable with the companies’ credit profiles on the right-hand side of the chart, the companies on the left appear to be investable and well-priced.
    • Planet 13 PLNHF is the cheapest company of the group based on EV/Revenues and the top-ranked credit, largely due to its debt-free position and strong liquidity. However, profitability has been poor, with single-digit EBITDA margins for 2022 and YTD 2023. Operating cash flow was negative $5.2M for the first quarter, and PLTH has upcoming capital spending needs of  $10M-$20M, mostly to complete its Illinois and Florida buildouts.
    • Grown Rogue GRUSF trades at 1.22x annualized revenues and ranks as the second-best credit of the group, with the best leverage, second-best profitability, and third-best liquidity. GRIN has very little debt and has had positive operating cash flow for the last seven quarters. The company has proven to succeed despite operating in the difficult Oregon market.
    • C21 Investments, trading at 1.21x annualized revenues, ranks as the third strongest credit in the group according to the Viridian Capital credit model. The company has an impressive record of 13 consecutive quarters of positive free cash flow and virtually no debt, fully paying off its senior secured notes from internal cash flows. C21 is another company proving that a small SSO can succeed even in a challenging market (Nevada).
    • Cansortium CNTMF ranks as the fourth strongest credit in the group. The company has a good position in Florida and has one of the three available licenses in Texas. Unlike the top three credits, Cansortium carries a significant amount of debt at 3.5x debt/ mkt cap and 2.44x debt (including leases) to annualized adjusted EBITDA. We believe the company has solid asset value coverage and trades at only .86x EV/annualized revenues and 1.95x EV/ annualized adjusted EBITDA.
  • The four MSOS on the right of the graph all have negative cash flow from operations, high debt/mkt cap, and challenged profitability. Of the four, we are most intrigued by Goodness Growth GDNSF because of the optionality of its New York business and our perception that the company is a logical takeout candidate. Trading at .9x EV/annualized revenue GDNS may be a reasonable speculation.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis MSOS, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

  • Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors – from Cultivation to Brands to Software)
  • Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)
  • Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)
  • Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)
  • Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)
  • Credit Ratings (Leverage and Liquidity Ratios)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 MSOS M&A transactions totaling over $50 billion in aggregate value.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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