Cannabis Stocks: Are US MSO Multiples Too Low?

Cannabis Stocks: Are US MSO Multiples Too Low?

Are Cannabis multiples too low, and how do we know? To answer this question, we collected and summarized data on 266 companies across nine different industries, which we believe to be the most similar to cannabis. Tobacco and alcohol, for example, are both frequently mentioned in this context.

  • Are Cannabis multiples too low, and how do we know? To answer this question, we collected and summarized data on 266 companies across nine different industries, which we believe to be the most similar to cannabis. Tobacco and alcohol, for example, are both frequently mentioned in this context.

  • We used consensus analysts' estimates to calculate 2021-2023 compounded annual revenue growth and EV/2023 EBITDA for each company.

  • To summarize these by industry and calculate industry-wide metrics, we added all of the EV, revenues, and EBITDA for the companies in each industry group.

  • The Blue line (measured on the right vertical axis) shows the EV/2023 EBITDA multiple. The orange line (also measured on the right vertical axis) shows the 2021-2023 consensus revenue CAGR.

  • The blue line in the graph shows that the large US MSOs have the lowest 2023 EV/2023 EBITDA multiples of any industry group (6.33x).

  • The orange line shows that the US MSOs have the highest expected growth rate of any industry group (39.5%).

  • The green bars show that considering both valuation multiples and growth rates, US MSOs have the lowest growth adjusted EV/2023 EBITDA multiples (.16x).

  • But maybe there is a catch. Maybe the EV/ 2023 EBITDA multiples are low because the market is saying these companies are unlikely to meet the analysts' expectations. Perhaps margins will come down, or the companies won't meet their projected growth rates. Another possibility is that the market fears that substantial dilution will be required to achieve this growth?

  • The bottom line is that if we believe the consensus analyst estimates, US MSOs look like incredible bargains.

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 companies, 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 and hemp industry. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

  • Industry Sector (one of 12 sectors, from Cultivation to Brands)

  • Dollar value of the transaction

  • Region in which the deal occurred (country or U.S. state)

  • Status of the company announcing the transaction (Public vs. Private)

  • Deal structure (equity vs. debt)

  • Key deal terms (Pricing and Valuation)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 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.

Posted In: contributorsMSOCannabisNewsMarkets

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