Viridian Chart Of The Week: Finding The Right Balance Between Cheapness And Safety In Cannabis Stocks

Third-quarter earnings have been released for all companies in the Viridian Chart of the Week. Equity prices have had an opportunity to react to the news (or not). 

  • The orange line in the chart shows the EV/ 2024 Consensus EBITDA estimates—the enormous range from 1.63x for Cansortium CNTMF to 9.26x for Curaleaf CURLF is striking.

  • The widespread belief of better times ahead, with the likely removal of 280e and election-year movement on SAFER, might lead investors to reach for the cheapest stocks while paying less attention to risk, but that would be a serious error.

  • The industry has the better part of a year to feel any positive impacts from potential legislative moves. In the meantime, equity markets for the cultivation and retail segment remain highly challenged, and debt capital has become both scarcer and more expensive.

  • Accordingly, evaluating credit quality continues to be a significant element of stock selection.

  • The Viridian Capital Advisors Credit Tracker Model assigns a credit risk score to each company using 11 market and financial statement variables to resolve four key credit factors: Liquidity, Leverage, Profitability, and Size.

  • The green line on the chart is an attractiveness index calculated by multiplying the EV/2024 Consensus EBITDA by the Viridian Credit Risk Score. Companies on the left side of the graph are more attractive because they combine low credit risk and low valuation multiples. The index is biased toward credit quality. 

  • Green Thumb GTBIF ranks the most attractive because its excellent credit risk score outweighs its higher-than-average 7.45x EBITDA multiple.

  • Cansortium is an example of the opposite:  Its group-low EBITDA multiple of 1.63x more than makes up for its middle-of-the-group (#17/30) credit risk score.

  • AYR AYRWF is an excellent middle attractiveness example: its 4.29x EBITDA multiple is low, balanced out by its higher credit risk score.

  • Curaleaf appears relatively unattractive because its reasonable credit strength does not make up for its group-leading EBITDA multiple.

  • Acreage ACRDF is also unattractive, as its reasonable EBITDA multiple does not make up for its #23/30 credit ranking.

  • The Viridian Credit Risk Score gives investors an objective measure to use in balancing risk and reward, which is still paramount in the perilous cannabis environment.

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.

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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