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 05/05/2023
Viridian Capital Chart of the Week: Tier One MSOs Gain Most on SAFE Act Reintroduction
- The latest version of the SAFE Banking Act was introduced to the Senate and House on April 26th. In a cannabis market dying for any source of optimism, the introduction sparked initial sharp increases in stock prices. Some gains drifted away by Friday, partially due to Senator Schumer’s pledge to add social justice provisions to the bill. We have learned the hard way not to take any position on the bill’s passage, but we will admit that Schumer’s rhetoric elicited a bit of déjà vu.
- The chart shows the percentage gains in stock price (green line) for the week of April 28th for the top 22 MSOs arranged in order of increasing market capitalization (brown bars.)
- The correlation between stock price gains and market cap is clear: larger companies gained more.
- This is counterintuitive if one takes the stated intent of the SAFE Act at face value. The ACT aims to ease access to bank services, and this increased availability should help smaller companies the most. However, the image of an “all-cash” industry has not been the reality for years, at least not for public cannabis companies. None of the companies on this chart have difficulty obtaining basic bank accounts or services, and to that extent, the SAFE Act would produce modest gains at best.
- The most significant benefits of the SAFE Act are indirect. Granting a safe harbor for the provision of banking services may lead to increased willingness of banks to custody cannabis equities, and this could lead to greater trading liquidity and more incentives for the senior exchanges to allow listing. It may take some time, but an equivalent of the SAFE Act will eventually lead to up-listings, a much bigger deal for the companies on this chart.
- We are not surprised that the larger companies faired better. On any shot of optimism, the marginal dollar invested in cannabis gravitates toward bigger, more liquid, and ostensibly safer companies. Moreover, the larger companies stand to gain the most from eventual uplisting.
- AYR Wellness (AYR.A: CSE) is an outlier: a small market cap with significant gains. AYR could be one of the largest beneficiaries of re-invigorated capital markets activity fostered by renewed cannabis optimism.
- SAFE would doubtlessly help many small private cannabis companies to obtain services and financing. Still, for the companies on this chart, its most significant impact will be to pave the way towards increased liquidity, incremental institutional investment, and uplistings to senior exchanges.
