OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS

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 08/09/2024

Viridian Capital Chart of the Week: How Healthy are MSO Margins? Any Sign of Margin Squeeze?

    • The majority of MSO Q2: 24 earnings reports are in, and the press releases and conference calls had several repeated themes: Wholesale pricing pressure, increasing retail competition, and inflation caused consumer wallet tightening.
    • To evaluate the severity of this guidance, this week’s Viridian Chart of the Week compares the q2: 24 COGS and SG&A ratios of the top eight companies that have reported to q2: 23. We calculated COGS and SG&A, both on a cash basis, by excluding the depreciation and amortization included in the reported figures.
    • We find little evidence of gross margin erosion. Six of the eight companies on the chart had lower COGS ratios in q2: 24 than in q2:23. The outliers, with higher cogs, are AYR and TerrAscend.
    • Moreover, six of the eight companies also had lower SG&A ratios in q2: 24 than in q2: 23. We find this encouraging because SG&A ratios should improve further in the 2nd half as revenues from adult use in Ohio come on, and New York continues to build out.
    • While we do not challenge the notion that the consumer is hard-pressed by inflation, we remind investors that few products have shown the resilience of cannabis in challenging economic times.
    • The top MSOs have been improving on both gross margins and operating cost controls, and we expect them to continue to beat consensus expectations in the 2nd half of 2024.