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: How Attractive Is Cannabis Given its EBITDA Multiple, ROIC, and Sales Growth?
- The Viridian Chart of the Week attempts to answer a question posed by two of our earlier Charts
- Our 8/31/25 Chart showed that cannabis trades at significantly lower EV/EBITDA multiples than all the other industries it is commonly compared to. We have updated our analysis to use 2026 EBITDA multiples, and the result remains the same.
- Our 9/12/25 Chart looked at the Return on Invested Capital (ROIC) of cannabis relative to the same group of industries and found that cannabis generally has lower ROIC, both due to lower after-tax operating margins and lower asset efficiency. This result held despite using post-280E tax rates in the analysis.
- The obvious question is whether cannabis’s lower ROIC is enough to justify its lower valuation multiples.
- To answer the question, we created a relative valuation index by dividing the EV/ 2026 EBITDA multiple for each industry by its projected 2026 ROIC. The chart shows this index on the vertical axis against the projected 2026 revenue growth % on the horizontal axis.
- Only three sectors, Special lines retail, tobacco, and Pharma, trade at lower ROIC adjusted valuation multiples, and none of them have as high a projected 2026 revenue growth as US Tier 1 MSOs.
- The remaining valuation discount of cannabis is undoubtedly attributable to a great degree to 280E because each dollar of cannabis EBITDA translates into a lower amount of free cash flow than in the other sectors. We expect a major pop in valuations if S3 is enacted and perhaps an even greater rise upon the passage of a version of the SAFER Act, which we believe would lead to uplisting of cannabis stocks and access to a wider investor base. Cannabis stocks represent spectacular value, but unfortunately, unlocking it is currently dependent on action in Washington, D.C. We take comfort in the fact that Tier 1 MSO multiples are now lower than they were prior to the first HHS announcement in support of S3 on August 30, 2023. It seems to us like an asymmetric bet with significantly more upside than downside.
