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 03/17/2023
Viridian Capital Chart of the Week: How Much is Liquidity Worth? (It’s Complicated)
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- The graph displays enterprise value/consensus 2023 EBITDA, for the 22 analyst-rated U.S. Cultivation & Retail companies in the Viridian Value Tracker database, by size and liquidity level.
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- The green bars display EV/2023 consensus EBITDA while the yellow bars show the Viridian cash flow adjusted current ratio, calculated by adding annualized free cash flow to current assets in the standard current ratio.
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- The left side of the graph shows the 12 companies with less than $200 million in market cap, while the bars on the right represent the ten companies with over $200 million. Each group is divided in half based on whether companies had above or below median liquidity ratios.
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- The graph clearly shows the narrowed valuation gap between small and large cannabis companies we have chronicled in the Deal Tracker. The median multiple for the small companies is now 4.3x compared to 4.7x for the larger companies, whereas this gap was over 500bp when we first did this exercise two years ago. The smaller gap has significant ramifications for the accretiveness of acquisitions. We believe the current gap is understated due to the relative illiquidity of the smaller companies.
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- Interestingly and counterintuitively, the low-liquidity small companies trade at a higher median multiple than their more liquid counterparts. Furthermore, their liquidity ratio indicates the need for financing or other liquidity events in the next year. Possibly this group is being buoyed by takeover speculation.
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- As expected, higher liquidity is rewarded with higher valuations within the large company group, but the impact is not nearly as dramatic as we would have expected.
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- About half of the analyst-rated U.S. Cultivation & Retail companies will need additional financing in the coming year. Yet, the market is not exacting any significant discount for this. Larger and more liquid companies should be garnering a more significant valuation premium.
