The Viridian Credit Tracker utilizes 11 different bespoke credit ratios to evaluate four aspects of credit quality: Liquidity, Leverage, Profitability, and Size. We are fascinated by a pattern we see in the credit data across our 12 subsectors of cannabis.  We are fascinated by the credit quality of the Psychedelics sector, which is the only sector we track that has raised more capital in the current LTM period than they did in last year’s LTM.  The liquidity stats are explanative.  The sector has a median current ratio of 6.0x which would seem to indicate that they are highly liquid. The Viridian Credit Tracker ratio of free cash flow adjusted current ratio tells a drastically different story.  We take annualized most recent quarter free cash flow out of the numerator of the standard current ratio to adjust for the cash burn of the companies.  The sector median adjusted number is .02x, clearly indicating that the companies will burn through their liquidity in less than one year and are highly likely to require more financing.  Interestingly, that may not be such a problem even in the current risk off environment.  The companies trade at a median 1.9x tangible book value and 5.9x annualized revenues.  They are listed on senior exchanges, not exposed to 280e taxation, and have been attracting institutional capital.  For these reasons, we tend to believe the sector will be able to attract the capital it requires.

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