OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
Capital Raises
Capital Raises Summary
Each week, Viridian publishes insights and analysis on completed capital raise transactions in the prior week, focusing on all equity and debt deals. Our analysis includes:
- Summary
- Outlook
- Best & Worst Perfromers
Quick Links
YTD Analysis
Cannabis capital raises are off 65.1% YTD:
- Total Equity issuance is off 75.3%, and total debt issuance is down 49.2%.
- U.S. debt is down only 38.7%, while Canadian debt is down a more significant 75.8%.
- At 57.1% of total capital raised, debt remains the highest in history for comparable periods.
- Public companies accounted for 74.5% of total financing YTD, down from 79.6% in 2021.
- The graph below shows that U.S. activity dominated capital raises for the first forty-eight weeks of 2022, with 75.2% of all capital raised.
- International capital raises of $318.7M represented 7.9% of total capital raises, exceeding the previous record of 6.3% in 2019.
Market Commentary and Outlook
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- Cannabis stock prices (measured by the MSOS ETF) were up 9.08% last week on the increased conviction about the passage of the SAFE+ act.
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- We thought SAFE would be inserted into the NDAA defense authorization bill; however, on Tuesday, Mitch McConnell, the Republican Senate leader, was critical of the attempt to “jam in unrelated items with no relationship whatsoever to defense.” Not sure if that was just political posturing, but the MSOS ETF was down sharply on the news. We still think there is a good chance for SAFE passage in the year-end Omnibus, but we have to admit we are a bit less confident than we were yesterday.
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- SAFE should produce a meaningful lift in cannabis equities, but we believe the more important impacts will be indirect. SAFE will likely encourage more financial institutions to provide custodial services for cannabis equities, increasing the liquidity of the stocks, promoting more trading volume, and enticing new investors. We believe this virtuous circle will eventually lead the exchanges to allow the uplisting of cannabis equities.
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- Last week’s gains propelled valuation multiples for the largest MSOs to levels last seen at the beginning of the year. Tier-two and Tier-three MSOs are not quite back to their beginning-of-the-year levels, but only because they tend to lag on the upside. Our valuation gap graph shows that approximately 50% gains could be achieved by returning multiples to their mid-2021 levels. We believe this is a conservative view of what can be expected within a couple of months of SAFE passage.
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- Multiple expansion is the primary route for stock appreciation because we expect EBITDAs to continue to be pressured by commoditization price declines and inflation-driven cost increases. Estimates for 2023 EBITDAs have continued to drift lower, with the latest downward revisions occurring as recently as last week.
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- Surprisingly, Canadian LPs, saw nearly as much price appreciation last week as the major MSOs. This doesn’t make much sense to us as we fail to see what benefits the Canadian LPs can garner from the passage of the SAFE act. Tier-one MSOs are currently priced at a 113% premium to large Canadian LPs in terms of enterprise value to next-twelve-month revenue, down from around 120% at the end of September.
This Week Sector Focus
The U.S. Cultivation & Retail sector has experienced a similar change in capital raise activity, although the components have changed significantly:
- Total capital raised is down 62.7%, but equity capital raised is down approximately 96.3%.
- Debt financing is down 28.1% YTD but accounts for about 95.0% of all capital raised; private companies raised 25.7% of it.
- 72.1% of total capital raises YTD were completed by public companies compared to 80.4% in 2021.
- In 2022, there have been no equity deals above $25M.
Capital Raises vs Stock Prices
Best and Worst Stock Performers
YTD Returns by Public Company Category
- Psychedelics recovered one ranking position in our listing of YTD performance by category.
Best and Worst Performers of the last week and YTD
- Green Thumb (GTII: CSE), Cresco Labs (CL: CSE), Trulieve (TRUL: CSE), and TerrAscend (TER: CSE) were all on our top ten gainers list based entirely on the swirling SAFE rumors.
- Nova Cannabis (NOVC: CSE) and Tilt Holding (TILT: NEO) were sharply lower after being on last week’s biggest gainer list. We saw no particular news to explain the swing.
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