VIRIDIAN INSIGHTS

• THE RESCHEDULING TOPIC NO ONE IS TALKING ABOUT
  • The Viridian Chart of the Week detailed the size of unpaid 280E liabilities held by the top MSOs. Aggregating over $2 billion and representing more than 1x EBITDA for most players and over 1x market cap for a select few, these are numbers not to be ignored. 
  • The big question is what happens to these liabilities if and when S3 actually arrives. The prevailing view among several top law firms is that these liabilities do not simply disappear. Instead, the most likely outcome is that they will be settled, negotiated down, or allowed to drift away due to the statute of limitations.
  • We have heard several MSO spokespeople reference the precedent of Harborside, which in 2022 settled over $22 million of tax liabilities for only $5.8 million, an amount they agreed to pay over nearly ten years. It is essential to note that the IRS never agreed to a lower liability figure; it only, as a matter of enforcement reality, agreed to the settlement because, as they say, you can’t get blood from a turnip. The idea that companies will be able to settle these liabilities for pennies on the dollar seems somewhat naïve.
  • Viridian has always considered these liabilities as debt, and our “Enhanced Metrics” chart shows leverage with these amounts included.
  • Note: We would like to acknowledge an error in our chart, which incorrectly showed Grown Rogue having far more 280E liabilities than they actually do. Our online site shows the corrected values, which place GR as having the smallest unpaid tax issue of the companies portrayed.
• PLEASE DON’T SCHUMER US, PRESIDENT TRUMP
  • Trump finally came out with a public comment about cannabis rescheduling, causing cannabis stock to soar. The tense wait is now on to see what action will be taken, and the stock market is trading significantly more volume with heightened volatility in response.
  • Despite the positive market response, many commentators are less than comfortable with the impact of S3 on the industry.
  • The prevailing worry has to do with Trump’s casting shade on recreational cannabis versus medical cannabis. Will S3 result in heavy-handed FDA enforcement, which will decimate the recreational industry and hand the business over to the pharmaceutical industry?
  • We do not see this happening.
  • We view Trump as first a politician, second a businessman, and nowhere on the list as a social reformer.
  • We see Trump grabbing what we always thought was a natural cause for him:
    • First off, Cannabis is the ultimate in States’ rights issues. The very existence of the industry owes to the willingness of the states to thumb their nose at the federal government. Trump is no anarchist in that regard, but he is still a big supporter of states’ rights
    • Next, cannabis reforms can add billions to the economy by fostering job growth, increasing tax revenues, and reducing significant expenses in police, courts, and jails, among others. This goes along well with his pro-business and cost-cutting leanings.
    • Promoting Cannabis is consistent with his tough stand on opioids, fentanyl, and drug gangs. Some states, like Utah, have explicitly stated that they believe their medical cannabis program can be the off-ramp for opioid abuse. Trump is skilled enough to make the point that being hard on hard drugs and pro-cannabis are consistent positions.
    • Cannabis is an immensely popular issue favored by a strong majority of voters. With midterms coming up fast, Cannabis is an issue that Trump can steal from the Democrats and use to solidify his base.
  • The idea that Trump will push an agenda that wipes out state legal recreational markets through overly aggressive FDA regulation seems highly unlikely. Remember, we are discussing an industry that generates 400,000 jobs and billions of dollars in state tax revenue. Will Trump push to shut that down? We doubt it.
  • Also remember that the FDA, which people fear will crush rec cannabis, is the same timid and ineffectual agency that totally punted on a much less difficult issue, CBD. To think that a somehow invigorated FDA is going to rise and smite recreational cannabis is difficult to imagine. Is it even possible to stuff that genie back into the bottle? It would most certainly be an enormous boon to the cartels that Trump is hell-bent on eliminating.
  • And although we have always thought that cannabis fails as a vote-driving issue, that might be quite different if the government tried to eliminate recreational cannabis. And to what end? Does anybody think a new war on drugs can be any more successful than the past ones?
  • Those who view S3 as dangerous almost always call for complete descheduling. Descheduling, leading to interstate commerce, would be a huge win for California, Oregon & Washington State but a tremendous loss for everyone else. We cynically believe that States only voted for cannabis reforms for one reason: tax revenues. And every limited-license eastern state would come away as a loser from total descheduling. MSOs in those states would be subject to enormous asset writedowns, as numerous cultivation facilities would become virtually obsolete overnight.
  • The good news is that complete descheduling is not on the table for the near future. One of the most powerful lessons we have learned in our cannabis years is that you should always be careful what you wish for.
• WHO WILL BELLY UP TO THE REFINANCING WINDOW NEXT?
  • Cresco agreed to a $325 million refinancing of its outstanding debt that was coming due in December 2026
  • The new secured term loan will have a five-year maturity and a 12.50% interest rate, which is virtually on top of where its existing 2026 debt has been offered for the last several weeks.
  • Cresco, Trulieve, Curaleaf, and Verano together accounted for $1.5 billion of the $1.9 billion remaining 2026 maturities, after AYR and 4Front were eliminated.
  • The successful refinancing of the Cresco debt, along with the run in equity prices, produced a significant reduction in the yield on the other three companies. The market seems to be more comfortable with the idea that they can also refinance their debt, as we have always believed.
  • Trulieve has stated an intention to refinance roughly half of its maturing debt by year-end, so they appear to be first in line, and their credit metrics make them the easiest deal to complete. Verano and Curaleaf should also be successful in refinancing; however, after that, things become a bit more dicey. Refer to our analysis above regarding refinancing risk.
• NEW YORK – THE COMEDY OF ERRORS CONTINUES
  • Recently, we discussed the matter of the NY OCM miscalculating the distance from cannabis dispensaries to schools and houses of worship, thereby putting 105 licenses in peril.
  • Adding insult to injury, the state established a fund that would offer up to $ 250,000 to assist with relocation. Talk about disconnection from reality? $250K won’t even cover lease cancellation charges, and finding an alternate location may be next to impossible.
  • Hopefully, Governor Hochul’s proposal to grandfather the licenses will succeed, but we learned long ago not to bet on the wisdom of NY politicians.
  • Adding to the mess is an August 12^th ruling from the Second Circuit in the case of Variscite NY Four LLC v New York State Cannabis Control Board, which held that under the Dormant Commerce Clause, New York’s licensing preferences tied to New York-specific marijuana convictions are discriminatory and cannot stand. So now license applications that were given preference on those grounds may come under challenge.
  • We projected in June that New York would climb to a top-five position in retail cannabis sales. Still, our analysis rested heavily on the continued rapid pace of dispensary rollouts. Nowhere in our modeling did we consider the possibility that NY might head in the wrong direction!
• GAUGING THE RISK OF THE 2026 DEBT MATURITY BUBBLE
  • Much has been made of the upcoming wave of cannabis debt maturities in 2026. The sheer size is undoubtedly intimidating. The companies pictured on the graph below collectively have approximately $1.5 billion of debt maturing in 2026. (IAnthus maturities are actually in 6/27, but close enough!). This figure used to be over $2.3 billion, before Gold Flora, 4Front, and AYR flamed out, and Cresco entered an agreement to refinance its secured term loan. Putting that figure into perspective, $1.53B is still more than total cultivation & retail sector capital raises for any year since 2019, except for 2021 ($4,8B) and 2022 ($1.7B)
  • Viridian is generally more constructive about the issue than most other industry observers. We observe that in the high-yield bond market, it is virtually never the case that debt is paid off in cash. It is generally refinanced, OR the company is forced to restructure. Obviously, given the lack of prepackaged bankruptcy (or any bankruptcy, for that matter), restructuring is rightfully a prospect to be feared in the Cannabis Industry.
  • So, how do we gauge the risk of something going wrong in 2026? Refinancing risk is a peculiar mixture of market psychology and financial realities.
    • The green bars show the 8/15/25 market-implied asset coverage of total liabilities. We arrive at this by viewing the equity as a call option on the asset value of the firm, with a strike price equal to its liabilities, and assuming maturities of 2026, as well as a 30% volatility and a risk-free rate of 4.25%. This provides us with all the elements of the Black-Scholes option pricing formula except for the current asset value. By iterating on the solution of the BS model, we can find the market’s assumption for asset value. The importance of this data point should be obvious. For companies with less than 1x asset coverage of liabilities, debt providers are effectively making an equity bet. They do not have adequate asset value coverage to fall back upon.
    • The red line represents the Viridian Capital credit ranking, which considers four key credit factors: Liquidity, Leverage, Profitability, and Size. Refinancing will be more difficult for weaker credits (higher numbers). Companies with ranks of under 16 are in the top half of the Viridian-ranked universe of credits.
    • The black dots represent the multiple of market cap that the 2026 debt maturities represent. Clearly, the larger the debt maturities relative to the market cap, the more difficult we would expect refinancing to be.
    • The ten companies to the right of Jushi (JUSHF: OTCQX) on this graph represent higher risk. They have less than 1x asset value coverage, generally poor Viridian Credit Ranks, and several, such as IAnthus and Body & Mind, have maturing debt that is a multiple of their market capitalization. Companies in this position represent only about $170M of the maturing debt.
    • Conversely, the fourteen companies on the left-hand side of the graph represent lower refinancing risk. They have solid asset coverage, strong Viridian Credit Ranks, and maturing debt that is less than 1.25x times their market capitalization. These companies represent $1.36 billion of the $1.53 billion total (70%), and we believe they should all be able to refinance their maturities without undue hardship. There is always the possibility of an “accident” where negative psychology meets illiquid funding markets, and refinancings that appear favorable on paper fail to materialize. The offered side quotes on Curaleaf, Verano, and Trulieve, the solid credit MSOS with the most remaining 2026 maturities, all tightened significantly this week after the Cresco announcement and the market equity run. Investor psychology appears to have shifted, with a growing belief that these names will be able to refinance their maturities without undue hardship.
    • The bottom line is that market psychology is crucial in debt refinancing, and it has become more positive for the larger, systematically important MSOs.

• FOUR KEY GRAPHS THAT SEEK TO MAP THE OPTIONS AVAILABLE TO THE MSOs BASED ON THEIR VALUATION, LEVERAGE, AND LIQUIDITY
  • The first two graphs present different versions of EV/EBITDA on the vertical axis and Debt/EBITDA on the horizontal axis.
  • The first graph presents our latest view of the most appropriate valuation and financial statement-based leverage metrics: Adjusted Enterprise Value (EV) / 2026 EBITDAR and Adjusted Net Debt / 2026 EBITDAR. In calculating Adjusted Net Debt, we make several key assumptions: 1) Leases that are included on the balance sheet are considered debt. We view most leases in the cannabis space as equivalents to equipment loans or mortgage loans. While it is true that a lease default does not necessarily trigger a cascade of events leading to bankruptcy, the distinction is often meaningless in the Cannabis Industry due to the mission-critical nature of many long-term leases and the absence of bankruptcy protection in This Sector. 2) We consider any accrued taxes (including uncertain tax liability accounts listed as long-term liabilities) in excess of the most recent quarterly tax expense to be debt. Our calculation of enterprise value is now market cap plus debt plus leases plus tax debt minus cash. We now use EBITDAR rather than EBITDA, as lease expense is deducted prior to calculating EBITDA.
  • The second graph utilizes EBITDA and employs traditional calculations for both debt and enterprise values, excluding leases and taxes.
  • Our adoption of new metrics tends to make the companies look less cheap and more leveraged.
  • Surprisingly, seven of the companies on the enhanced metric chart are still above 3x leverage, which we have identified as the boundary of sustainability in a 280e environment. Five companies now exceed 4x leverage, which we believe will be close to the maximum sustainable post-280E.
  • Glass House is a valuation outlier. We have been positive on Glass House for quite a while, but the multiple spread to the nearest competitor is straining our resolve. We note GLASF’s $25M at the market equity issuance facility as another factor likely to restrain price appreciation. Finally, the unpredictability of the resolution of the matter regarding the recent raids

• The third graph examines leverage through the lens of total liabilities to market capitalization. We believe this is the single best measure of leverage because it is a direct reflection of the market’s assessment of a company’s assets in excess of its liabilities, and it is sensitive to changes in the market’s perception of a company’s future prospects.
  • On the bottom left are companies with an Adj. EV/2025 EBITDAR ratio of under 7x and total liabilities to market cap of under 2x. The group includes GTI, Trulieve, and Vext. Companies in this quadrant are right to consider stock repurchases or using cash in acquisitions. They can afford some additional debt and can take advantage of the ongoing dislocation in equity prices.
  • Between 2x and 5x total liabilities to market cap, we find Verano, Curaleaf, Cresco, and MariMed. Verano, Curaleaf, and Cresco all have significant 2026 maturities; however, we do not believe they are likely to face difficulties refinancing their debt.
  • On the right lies Cannabist and Ascend, both between 6x and 12x, a range that signals stress if not distress.
  • AYR, 4Front, and Schwazze are now off the chart to the right, befitting their distressed status. Our recent work, which utilized option modeling of equity prices, showed that the market believes each of these companies has significantly less asset value than its liabilities.

• The fourth graph introduces the free cash flow adjusted current ratio liquidity measure into the mix. Note that we have recently modified our treatment of this ratio by removing uncertain tax liabilities from current liabilities, where they were previously placed. The result is that no company is currently significantly below 1x free cash flow adjusted current ratio.
• On the top left, we find companies with adequate liquidity and low market leverage, including GTI and Glass House. Companies in the lower right generally have constrained liquidity and high leverage, a potentially dangerous combination in a capital-constrained environment. The only company presently on the chart with these symptoms is Cannabist. Note: SHWZ, AYR, and 4Front are now off the chart to the right, with extreme market leverage indicating significant distress.

• VALUATION METRICS SUGGEST STRONG UPSIDE POTENTIAL FROM ANY REGULATORY REFORM, BUT CONTINUING MARKET SKEPTICISM
  • Recent rallies have raised the aggregate EV/NTM for the top 11 MSOs back to above its level from August 25, 2023, the date the HHS announced its support of S3. The current reading is the highest since the election. Trump’s announcement that a decision on S3 would be forthcoming is the most significant news in cannaland for quite some time. Still, although stock prices, as represented by the MSOS ETF, have risen 82% in the last month, there is tremendous upside left to be captured. The market has predictably reacted with some skepticism, and commentators have even gone so far as to question whether S3 was a good thing for the industry (it IS).
  • So how much upside is left to be gained? We do not believe that multiples will return to their 2021 peaks for several reasons, including slowing growth, competition from hemp, wholesale pricing pressure, and a weary consumer. Moreover, some of the changes to facilitate wider bank acceptance, uplisting, credit card usage, credit ratings, and custody of stocks, among others, will require further reform measures, such as the SAFER Act or a variant, and possibly a new “Bondi memo”.
  • Nonetheless, we believe that a return to multiples in the 13x range is possible, which would provide an additional 95% return from current levels.
  • Trump has finally been heard from, but tremendous uncertainty remains.

• CANNABIS STOCK VOLUME AND LIQUIDITY REACH MULTI-YEAR PEAKS
  • The average daily dollar volume of $68 million for the week ending August 15 is the highest in the last 52 weeks. Volume exploded on Monday to a new high of $114M following Trump’s announcement of rescheduling review. The current Days to Trade the Market Cap (DTTMC) of 211 similarly represents a new liquidity high. A DTTMC of 211 implies that an investor who acquired a 5% position in the stock, assuming they wanted to be less than 25% of the average daily dollar volume, would require 42 days to trade out of their position, a remarkable figure given the 250-day average for the preceding 52 weeks.

• GIVING CREDIT WHERE CREDIT IS DUE
  • The chart below displays our updated credit rankings for 30 U.S. cannabis companies as of August 15, 2025. The number below the ticker symbol indicates the change in credit ranking since last week. A negative number suggests credit deterioration, while a positive number indicates improvement.
  • The blue squares show the offered-side trading yields for each Company. Yields on Trulieve, Curaleaf, and Verano have decreased significantly over the last two weeks, driven by the Cresco refinancing announcement and the bullish tone in the cannabis equity markets.
  • Note: We have not seen quotes on the AYR senior notes since the announcement of the restructuring plan, but they were offered at around 50 flat in the previous week. When we adjusted our option modeling to reflect a ½-year to maturity option and a near-zero level stock price, we calculated an asset coverage of around 63%.