Cannabis Chart of the Week: Is The SAFE+ Act Scaring Away The Shorts?

• Cannabis stocks have rallied over the last several weeks as discussion of the Schumer/Booker bill and the likelihood of a pivot to a SAFE+ Banking Act dominated the news.

• Articles in the press have made it seem as though short sellers had been vigorously covering their positions.

• The graph shows the short positions of the five largest MSOs by market cap relative to 12/31/21. The trend in short positions has been a mixed bag.

• Four of the five stocks have significantly higher short positions than they did at the beginning of the year. Some of these increases are for obvious reasons.

• Cresco CSE, shown in the dark maroon line, now has approximately 4.5x as many shares sold short as it did on 12/31/21, which makes good sense. The risk arb spread in CL’s acquisitions of Columbia Care CSE was 10.6% as of 7/22. Investors who believe the transaction will be completed can capture this spread by buying Columbia Care and shorting Cresco. Recent regulatory rulings and shareholder votes make this deal look more likely to happen, ergo, the higher short position.

• The Verano CSE short position makes sense for a similar reason. The arb spread in the company’s proposed acquisition of Goodness Growth is even wider at 12.2%.

• The growing number of shares shorted in Trulieve CSE and Curaleaf CSE is more difficult to explain. We would have thought that these two would be prime gainers in any banking reform or broader legalization, so they have 7x and 2.5x as high short positions, respectively, in Mid-July as they had in December 2021 curious. Curaleaf may be due to its valuation at 9.7x 2023 EBITDA, significantly higher than any other company in the group. We have no explanation for the Trulieve short position, which began to balloon upward in May.

• Green Thumb CSE, (shown in red) at .85x is the only company in the group to have fewer shares shorted in Mid July than at year-end. We believe GTI will be a prime beneficiary of any increase in institutional investment in the space, and its valuation of only 5.9x EV/ 2023 EBITDA would make it an unwise short.

• We have not seen a wholesale covering of cannabis short positions. Perhaps investors cynically think the seventh House passing will be the same as all others. Investors would do well, though, to keep a close eye on short positions as a gauge of evolving market sentiment.

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)