Cannabis Chart Of The Week: Which Companies Have The Most Upside And Downside From A DEA Announcement?

The MSOS ETF is now up 41.4% from the August 30, 2023, HHS rescheduling announcement, but it has fallen significantly from its peak gain of 85.0% in mid-September. The Viridian Chart of the Week looks at the potential upside and downside of the top 15 MSOs concerning a DEA announcement on rescheduling.

• The blue bars show the percentage gain in each stock since the HHS announcement, and the graph is arranged from the smallest gains to the largest gains. 

• One way to look at the downside risk from an adverse DEA ruling is to hypothesize that the companies would probably at least give up any gains they have made since the HHS announcement. Two companies, Medicine Man Technologies SHWZ and Cannabist CBSTF have experienced declines of 18% and 16%, respectively, from their pre-HHS announcement levels. Since they have gained nothing from the announcement, one might hypothesize they have less to lose from adverse developments. Two others, TerrAscend TSNDF and MariMed MRMD have experienced minimal gains of 1% and 2% respectively. The rest of the group has shown much more significant gains of between 13% for 4Front FFNTF and 177% for AYR Wellness. The companies on the right side have experienced astounding gains in the short period since HHS, and one might expect that they would be the biggest losers from any negative DEA news.

• The top of the orange bars shows each stock's maximum gains since HHS. One might reasonably assume that upon a DEA ratification of Schedule 3, stocks would at least return to the peak gains after HHS. For some of the companies on the chart, gains on this basis would be minimal. Glass House GLASF and Ascend AAWH are within 9% and 4%, respectively of their maximum prices since the HHS announcement. For other companies like Cannabist and Trulieve TCNNF, the potential gains could be highly significant at 252% and 195%, respectively.

• Viridian believes the gains from Schedule 3 would likely be much more significant than retracing back to the peaks since the HHS announcement. We consider a reasonable next upside is the price levels achieved on 11/25/22 after the House passed the SAFE Act for the seventh time. The top of the green bars represents the gains achievable at those prices. Eight of the fifteen stocks could have gains of over 280% on this basis. These gains, in turn, are still far lower than the gains that might be achieved if prices went back to the 7/9/21 levels after the Schumer/Booker proposal was introduced and the multiples for the top ten MSOs were 15.7x NTM EBITDA vs. 7.6x currently.

• The chart provides investors with a guideline for the upside potential of a positive DEA announcement vs the downside risk of less favorable DEA news.

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.