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 04/12/2024
Viridian Capital Chart of the Week: How Much Have MSO Valuation Multiples Changed in the Last Year and Why?
- Most cannabis industry observers realize that valuations and valuations multiples for the major MSOs are up Y/O/Y, spurred by the promise of rescheduling.
- The chart shows the Enterprise Value to Consensus Next twelve-month (NTM) EBITDA multiples of fourteen major MSOs from 4/14/23 (light green bar) to 4/12/24 (darker green bar).
- Valuation multiples are up for 11 of the 14 companies on the chart. Outliers include Jushi (JUSHF: OTCQX), down 35.5%; TerrAscend (TSND: TSX), down 5.2%; and Ascend (AAWH: OTCQX), down 0.2%
- The multiples of the other companies on the chart rose from 3% for Cresco (CL: CSE) to 70% for Curaleaf (CURA: TSX). The group, in aggregate, had a 39% increase in EV/NTM EBITDA multiple from 6.13x to 8.53x.
- The lines on the Graph depict the two possible reasons for multiple changes. If a company’s EV/EBITDA multiple went up, it was either because its Enterprise Value went up, or its EBITDA went down, or some combination of the two. The maroon line shows the percent change in enterprise value, while the orange line shows the percent change in consensus NTM EBITDA estimates.
- The group EV/EBITDA went up 39% because enterprise values rose 37.9% while EBITDA estimates fell by 0.9%. In other words, the market is simply valuing a static amount of EBITDA at a higher multiple. Nine of the fourteen companies have lower NTM EBITDA estimates.
- Five companies on the chart have increased valuation multiple but lowered EBITDA estimates: AYR (AYR.A: CSE), Trulieve (TRUL: CSE), Shwazze (SHWX: OTCQX), Curaleaf (CURA: TSX), and Vext (VEXT: CSE). Curaleaf is an example of pure multiple expansion despite a nearly flat EBITDA. Schwazze (SHWZ: OTCQX) had a 58% multiple expansion caused by a 21% change in EV and a 24% decline in EBITDA estimates. Vext had a 70% multiple expansion, from an 8% decline in EV and a 46% decline in EBITDA.
- Only two companies on the chart, GTI (GTII: CSE) and Cresco (CL: CSE) show both increased EBITDA multiples and EBITDA estimates.
- We would expect rescheduling to produce multiple expansion since a larger portion of EBITDA will become free cash flow post 280e. However, investors should remember that EBITDA growth is fundamental to corporate health. Companies like Ascend and Cresco, with modest and relatively flat valuation multiples but increased EBITDA expectations, are worth closer investigation.
