Ten Predictions For US Cannabis In 2022: Valuations, MSOs, Consolidation, Software, Debt And More

• With just eleven days remaining in 2021, we make ten predictions for US Cannabis in 2022
• Valuations to remain depressed with the potential for further compression.
• New out year multiples highlight longer term upside potential for investors.
• The largest MSOs will lose share to smaller operators.
• Consolidation to accelerate.
• Significant legislative progress at the state level including rec in populous states. It will not matter for stock returns.
• Declining flower pricing to be a problem. Pressure presents opportunities for brands and service providers.
• Software plays continue to garner main stream institutional investment. Institutional interest represents a harbinger of what will come for plant-touching operators post banking legislation.
• Debt becomes cheaper for even smaller operators. Capital access fuels growth and M&A.
• International opportunities become a focus for US operators.
• Smart operators to hedge on interstate sales opportunity.

Investment Highlights:

• Valuations to remain depressed in ’22 with possible further declines. Upside of >2X is reasonable in next few years on ’24 valuation multiples.
• 2022 outperforming stocks will be of companies that best execute on growth initiatives and beneficiaries of M&A.
• More accessible lower cost debt supports growth outlook.
• Continue to favor smaller and medium sized players over more expensive peers. In many cases are better positioned for growth and margin expansion but priced at relative discount.
• Multiple factors align for consolidation in ’22. Of covered companies believe Cansortium and Goodness are most likely takeouts. Each offers significant value at current levels.
• Expect California to be a target for M&A as large operators see value in challenged operators and seek a hedge on future interstate sales.

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Viridian Capital Advisors
www.viridianca.com
Jonathan DeCourcey
Director of Equity Research
JDecourcey@viridianca.com
(781) 724 - 6869

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The information contained herein is for informational purposes and is not intended as a research report. It should not be construed as Viridian recommending investment in cannabis companies or as a solicitation to buy or sell any security or engage in a particular investment strategy. Investment in cannabis companies entails substantial risk. Before acting on any information, you should consider whether it is suitable for your particular circumstances and consult all available material, and, if necessary, seek professional advice.
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