Cannabis Chart Of The Week: Investors DO Care About EBITDA Surprises

• Paradoxically, although most of the seventeen major cannabis companies on the graph have had negative cumulative EBITDA surprises YTD in 2022, most of their stocks have outperformed the widely followed MSOS ETF. We have noted in the Viridian Deal Tracker how quarterly misses didn’t seem to matter to investors, so we decided to take a YTD look to see if investors were focused on a longer period.

• The blue line on the graph shows the total EBITDA for the 4th quarter of 2021 and the first quarter of 2022 relative to the total consensus analyst estimates for these quarters. Downside surprises were both more frequent (11/17) and more significant in magnitude. The worst misses by Jushi JUSHF and TerrAscend TER  of 72% and 37%, respectively, were larger in magnitude than the top beats by 4Front FFNT and Schwazze SHWZ of 29% and 14% respectively. Unsurprisingly, analysts are prone to miss on the high side. 

• The orange line on the graph shows the YTD performance of each company after subtracting the YTD performance of the MSOS ETF (-46.4%). Interestingly, despite 11/17 missed estimates, only four of the seventeen companies performed worse than the MSOS ETF. AYR AYR, Ascend Wellness AAWH, Planet 13 CSE: PLTH), AND Green Thumb GTII underperformed the index by 13%, 8%, 3% and 3% respectively. 

• The correlation between EBITDA surprises and stock performance seems modest at first glance. For example, Jushi JUSHF missed earnings estimates by 72% and yet outperformed the MSOS by 1%. Similarly, Tilt Holdings TILT had the third-worst (32%) EBITDA miss but beat the MSOS by over 30 percentage points. Finally, the Parent Company, which missed estimates by 21% and logged the only cumulative negative EBITDA, outperformed the MSOS by 25 percentage points!

• Thankfully, some rationality IS perceptible in the data. The six companies that beat estimates (from Curaleaf CURA rightward on the graph) had an average performance of more than 20 points above the MSOS, solid evidence that investors care about earnings.

• Investors should increasingly focus on profitability and liquidity as the strong macro headwinds continue to buffet the market. It is tempting to cynically believe that legalization is all that matters, but the data says otherwise.

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, 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 M&A transactions totaling over $50 billion in aggregate value.

Photo by Javier Hasse.

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