Week of 9/26/22-9/30/22 - Viridian Capital Advisors

Capital Raises

Home » Week of 9/26/22-9/30/22

Cannabis capital raises are off 63.9% YTD

Total Equity issuance is off 74.4%, and total debt issuance is down 43.9%.
U.S. debt is down only 27.6%, while Canadian debt is down a more significant 78.3%.
At 53.7% of total capital raised, debt remains the highest in history for comparable periods.
Public companies accounted for 73.9% of total financing YTD, down from 83.2% in 2021.
The graph below shows that U.S. activity dominated capital raises for the first thirty-eight weeks of 2022, with 71.2% of all capital raised.

Cannabis stock prices (measured by the MSOS ETF) were down 5.4% from last week to a new record low.

The ETF is down 65.8% YTD compared to a 24.8% decline in the S&P 500.
- The likelihood of a 2023 recession is no longer controversial. Aside from economic slowdown, the risk of pronounced asset deflation is real. Quantitative tightening will remove the juice that has supported nearly every asset market over the last five years. Its impact could be more significant than the fed funds rate increases. The early October DOW bounce of 1,500 points is egging the FED on.
- The yield curve remained as inverted as last week, continuing to flash recession warnings.
- High Yield spreads widened at additional 25bps but are still not screaming credit crises.
- Meanwhile, the mix of secular and cyclical trends, including commodification-related wholesale price declines, inflationary cost increases, and a strained consumer, all still point to the potential for further reductions in cannabis margins. Analysts have reduced their 2023 EBITDA estimates for the large MSOs by 37% YTD. We saw no significant new downward revisions this week.
- The whipsaw of speculation regarding the prospects for the SAFE+ act is amazing. Sentiment appears to be tilting positive this week, on no solid basis. We continue to believe there Is a good shot at passage in the lame duck session.

The U.S. Cultivation & Retail sector has experienced a sharper change in capital raise activity:

Total capital raised is down 67.2%, but equity capital raised is down approximately 96%
Debt financing is down 24.2% YTD and accounts for approximately 93% of all capital raised; private companies raised a record 35% of it.
62.8% of total capital raises YTD were completed by public companies compared to 79.5% in 2021
In 2022, there have been no equity deals above $25M!

YTD Returns by Public Company Category

U.S. Tier 1 companies improved one notch relative to the U.S. Non-Plant-Touching group to become the third worst performing group YTD.

The market is strongly differentiating between MSOs. In two months, there has been a 60-point difference between the percentage returns of the best performing versus the worst performing MSO. The chart below shows the divergence of stock prices since the end of July.

Best and Worst Performers of the last week and YTD

Tilt Holdings (TLT: CSE) was the week’s best performer, with a 21.2% increase on news that it had extended the investigational period on its pending sales-leaseback deal with IIPR until November. Management expects to be able to resolve all issues with the Pennsylvania Department of Environmental Protection by then, allowing the transaction to close.

The four biggest losers of the week all have a commonality: California. VIBE (VIBE: CSE) and MedMen (MMEN: CSE) were both down 17.6%; Unrivaled (UNRV: OTC) was down 20.2%, and StateHouse fell by 39.9%.