Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Viridian Capital Chart of the Week: Significant Mispricings (Opportunities) Exist in the Cannabis Credit Markets
- The Chart depicts the offered side quoted yields of the debt of eight large MSOs versus the Viridian Credit Ranking of the Company.
- We have not shown the debt of Jushi, Cannabist, or AYR, because each of them is quoted significantly outside the range of the companies displayed. We also did not include this week’s convertible preferred issue by Glass House. Viridian does consider this issue to have significant debt characteristics, but the rest of the issues are senior and secured, making the 14.82% effective yield on the mezzanine financing not comparable.
- The graph shows the offered side quoted yield of the debt on the vertical axis, with the Viridian Credit Ranking on the horizontal axis. Each data callout indicates the maturity date of the debt and whether it is a Term Loan (TL) or Bond (BND). The regression equation, as indicated by the dotted line, has an R-squared value of 0.57 and is significant at the p < 0.05 level. This fit is significantly worse than the last time we ran this analysis in August 2024, when the R-squared was .91. This is a good indication that the market has become less efficient (and also less liquid) for cannabis MSO debt
- Note that the specifics of the collateral package and other debt terms can have a material impact on quoted yields. Moreover, there is a wide difference between the maturity of the debts. GTI, VIREO, AAWH, and TSND have refinanced near-term maturities through 2028 or beyond, while CL, TRUL, VRNO, and CURA all have significant 2026 maturities still to be refinanced.
- Despite these caveats, some mispricings are apparent: Cresco and Curaleaf appear to be undervalued, while Verano seems to be the most overvalued. A trade out of Verano into Cresco would pick up around 260 bps of yield while improving credit quality. At 12.4%, Cresco is trading at a spread to treasuries of more than 840 basis points, which is inconsistent with our view of its credit quality. CL has better liquidity and leverage ratios than Verano, and Verano has a significant contingent liability in the Vireo suit.
- Curaleaf, offered at 14.4% yield, is trading at distressed levels. Despite our #11 credit ranking, which places it as the third-worst ranked credit on the graph, a 1000 bps spread to treasuries is excessive.
- TerrAscend, although appearing overvalued on the graph, enjoys financial flexibility due to its ownership of significant unpledged assets.
- Investors have an opportunity for excellent yields on debt ranked in the top 1/3 of the Viridian Credit Scoring model results.
