Viridian Capital Chart of the Week: Introducing the Improved Viridian Capital Credit Ranking Model

What is it?

• The Viridian Capital Credit Ranking Model utilizes eleven different bespoke financial and market variables to resolve four critical credit factors: Liquidity, Leverage, Profitability, and Size. These Factors are weighted to arrive at a credit score and credit rank. The use of market equity prices in several of our ratios makes our model dynamic, reacting instantly to new information driving stock prices rather than remaining fixed between earnings releases. The Viridian model provides a substitute for the credit ratings that are not yet available for cannabis companies and represents a valuable selection and monitoring tool for both debt and equity investors.
• The graph shows the updated Viridian Capital Credit Rankings of the top 31 U.S. Cultivation and Retail companies. The black line shows our liquidity rank; the red indicates our leverage rank, and the green indicates our overall ranking. The blue squares depict the yield at which the respective company’s debt is offered. The numbers below the ticker symbols show the positive or negative changes in model rankings from the prior week. See this coming week’s Viridian Credit Tracker for more detail on the indicators used in the model.

What’s New?

• Last week’s Chart introduced a pair of new valuation and leverage metrics that we believe are superior to traditional measures, taking into account important aspects of the MSO financial landscape, including accrued and unpaid 280e taxes and the preponderance of lease obligations in the capital structure of many competitors.
• We have now incorporated several of these ratios into our credit model. Our leverage measures now include Adjusted Net Debt/ 2025 Estimated EBITDAR after making the following adjustments.
  • Leases: our model always incorporated leases as debt through our most powerful leverage ratio, Total Liabilities to Market Cap; however, our updated model utilizes an Adjusted Net Debt/2025 EBITDAR estimate, where the debt includes all leases.
  • Taxes: We have also included as debt any accrued tax liabilities (including those in long-term, uncertain tax liability accounts) in excess of ninety days of tax expense. It is clear that several prominent cannabis companies are utilizing unpaid debt as a financing source, and our model now reflects that reality.
  • Rent Expense: Since rent has already been deducted from EBITDA, we add back the estimated rent expense to calculate Earnings Before Interest, Taxes, Depreciation, and Rent. Our Adjusted Net Debt/ EBITDAR ratio is agnostic to whether a company finances itself through leases or debt.
• Our Profitability indicators now include 2024 estimated EBITDAR/revenues, a measure that is unbiased in terms of whether companies lease or borrow.

Will More Changes Be Coming?

• We are constantly working on potential improvements to the model. Several changes under consideration include the addition of indicators for management changes, late financial statements, and an explicit consideration of the volatility of the market cap. We welcome user feedback and suggestions.