OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
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Chart of the Week
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.
Week ended 02/07/2025
Viridian Capital Chart of the Week: A Sneak Preview of Upcoming 4th Qtr. 2024 Earnings Releases
- The Viridian Chart of the Week provides a sneak peek at estimates of 2024 4th Qtr. EBITDA relative to 4th Qtr. 2023 EBITDA for fourteen of the largest U.S. MSOs. The total % change, shown by the green line, is decomposed into the portion attributable to estimated revenue changes (blue bar) and the part attributable to estimated EBITDA margin changes (orange bar). A detailed chart of the actual revenue and EBITDA data will appear in our upcoming Wednesday Tracker release.
- We want to look at these estimates early before any “nudging” on the part of the companies happens. We will review it closer to the earnings date to see what impact any guidance has had.
- Nine of the fourteen companies have lower estimated 4th Qtr 2024 revenues than in the year-earlier quarter. The estimated revenue changes range from -16.1% for TerrAscend (TSND: TSX) to 17.6% for Glass House (GLASF: OTCQB). The group as a whole has an estimated 2.8% decline in y/o/y revenues.
- Ten of the fourteen companies had lower 4th Qtr EBITDA Margins relative to the year-earlier quarter. The changes in margins range from -25.7% for Ascend (AAWH: OTCQX) to 40.7% for Cannabist (CBST: Cboe). The group as a whole shows a 4.9% decline in EBITDA margins for Q4’24 vs Q4’23.
- The graph shows that lower estimated margins account for a significantly larger portion of estimated EBITDA decline and decreased revenues. Of the nine companies with projected EBITDA declines, only Verano had a more significant portion attributable to reduced revenue. Of the five gainers, only MariMed and Glass House had larger revenue attributions than margins. The group, in aggregate, shows an estimated 7.5% decline in EBITDA, 2.7% of which Is attributable to revenues, while 4.8% is due to margin declines.
- The reasons for the dominance of Margins in explaining the estimated EBITDA declines are not hard to understand. Revenues in aggregate are down, pressured by continuing wholesale price erosion and a general pullback in consumer spending. Meanwhile, costs continue to creep up due to inflation.
- What will it take to correct this malaise?
- New adult rec states such as Pennsylvania and Virginia have potent impacts on both revenues and Margins as wholesale price compression has not yet occurred.
- In the longer run, however, it may take intrastate consolidation. As unprofitable competitors drop out or are acquired by more stable players, we should see a more disciplined or even oligopolistic structure develop, more conducive to the maintenance or expansion of margins.
