Sector Valuation Report – Cultivation & Retail

• The MSOS ETF has increased by 67% over the last month, and the cultivation and retail sector metrics reflect this improvement. Much of this gain has occurred in the previous week since the August 10 Trump announcement that his administration was actively considering S3. For the overall cultivation & retail sector:
  • Median EV/ 2026 EBITDA has improved to 5.83x vs 3.93x a month ago.
  • Similarly, our bespoke valuation ratio of adjusted EV to 2025 EBITDAR is up to 8.51x, compared to 6.4x a month ago. This metric includes the impact of all leases and accrued 280E tax liabilities in the enterprise value.
  • Valuation metrics still have a long way to go. Investors are optimistic, but still somewhat skeptical that the long-promised reform will actually happen.
  • Also, our credit piece yesterday highlighted the uncertainty surrounding “uncertain tax liabilities”, the accrued but unpaid 280E taxes that now aggregate to around $ 2.4 billion for just the top 12 companies.
  • Finally, we note that the sector still trades at only a 0.69x market-to-book ratio. This suggests a market expectation that future asset write-downs are likely. Given the low ROICs that we have been calculating, it’s hard to make a counterargument.
• The bottom line is that a new optimism is now filling the market. Obviously, that spells an increased risk if the best-case scenario of rapid S3 adoption does not occur. Still, we can look at cannabis stock prices without fear or revulsion again, and we are grateful for that at least.