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: ANALYSTS ARE PROJECTING LOW GROWTH AND MORE MARGIN EROSION IN 2025
- Most large Public U.S. Cannabis companies (except Glass House) have now reported results for the 4th quarter of 2024. The top graph shows the actual y/oy change in quarterly EBITDA for twelve companies. The green line shows the total percent change in EBITDA. Eight out of the twelve companies had declines in EBITDA for the quarter, ranging from 6.5%f for Ascend (AAWH: OTCQX) to 42.9% for Cannabist (CBST: Cboe). The four gainers range from 7.7% for Green Thumb (GTII: CSE) to 26.6% for Trulieve (TRUL: CSE). The group, in aggregate, had a 5% y/o/y decline in EBITDA for the fourth quarter of 2024.
- The blue bars show the part of the EBITDA % change that is attributable to changes in revenues, while the orange bars depict the EBITDA % change attributable to changes in margins. The impact of lower margins was the most significant factor in the EBITDA decline for eight of the twelve companies.
- The bottom graph shows the same analysis but compares projected 2025 EBITDA to 2024 Actuals. Consensus estimates show EBITDA declines for seven companies in 2025 and an aggregate decline of 4.0% for the group, caused by an estimated sales decline of .7% and a 3.3% decline in EBITDA margins.
- The cause for the declining margins is well known: continuing inflationary cost pressure paired with ongoing price compression. In addition, several managements have expressed overall macroeconomic concerns regarding overall weakening consumer demand. Unfortunately, excess capacity is difficult to squeeze out of the market due to high exit barriers. Moreover, once built, there is pressure to run facilities at full capacity as long as prices cover marginal costs, if not full costs.
- Margin declines in 2025 may also relate to weakening pricing in Florida. Five of the seven companies with projected EBITDA declines have a significant presence in Florida.
- The slightly negative growth projections for 2025 are due to the absence of new adult markets along with continuing price compression in maturing markets. Competition from intoxicating hemp is another restraining factor, albeit challenging to estimate. A more robust growth of 4.8% is projected for 2026, anticipating progress in Pennsylvania and/or Virginia. EBITDA margins for 2026 are projected to rebound to 2024 levels from the impact of the new markets.
- Interestingly, the only companies that are projected to have significant EBITDA growth in 2025 are the Tier 2 and 3 MSOs: Ascend (AAWH: OTCQX), TerrAscend (TSND: TSX), Jushi (JUSHF: OTCQX), and MariMed (MRMD: CSE).
- Investors should pay close attention to credit quality when they venture into smaller companies, which often have less financial flexibility. TerrAscend, Ascend, Jushi, and Marimed are ranked 11, 12, 16 & 17 on the Viridian Credit Tracker model, close to the middle of the 31 companies we credit rank each week.
