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 02/24/2023
Viridian Credit Tracker Shows Active Liability Management Can Affect Credit Quality
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- The graph depicts the two most significant factors in the Viridian Credit Tracker credit scoring model, Liquidity (blue) and Leverage (red) for the group of 12 U.S. Cultivation & Retail companies with Market caps between $10M and $75M.
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- The Viridian model uses eleven financial and market-based ratios to measure these two factors and Profitability and Size to determine a credit score and credit ranking (green).
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- The companies on the left side of the graph, including Vext (VEXT: CSE) and C21 (CXXI: OTC), exhibit strong liquidity and low leverage and earn top credit ranks.
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- Companies on the right side of the graph, including MedMen (MMEN: CSE), StateHouse (STHZ: CSE), and Unrivaled Brands (UNRV: OTC), have both high leverage and low liquidity resulting in the worst credit rankings on the graph.
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- Credit quality is not static; aggressive liquidity management can sometimes successfully raise credit quality significantly, while in other cases, these restructuring moves fall short.
- Tilt Holdings had $76.5M of current maturities on its September balance sheet, causing a significant liquidity issue. Its free cash flow adjusted current ratio of .83 clearly shows the problem. Tilt substantially eliminated the liquidity squeeze by undertaking a $15M sale-leaseback, $38M of Amended and Restated notes due 2026, and $8.2M of PIK Secured Promissory Notes due 2027. Additionally, the company used cash from operations to retire approximately $10M of debt in Q4: 2022 and Q1: 2023. The net result is a dramatic improvement in liquidity ranking from #7 to #5 and overall credit ranking to #3.
- Credit quality is not static; aggressive liquidity management can sometimes successfully raise credit quality significantly, while in other cases, these restructuring moves fall short.
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- In our view, Red White & Bloom’s restructuring program was less successful in curing its credit stresses. RWB’s June balance sheet virtually screamed “liquidity crises,” with FCF adjusted current ratio of .09. Like Tilt, RWB substantially restructured its liability structure, doing approximately $10.5M of debt for equity swaps and refinancing roughly $70M of maturities to 2024. Unfortunately, these moves were insufficient to solve its liquidity issues, and the company continues to rank the lowest of the group on this measure.
- Pursuing active liability management to its best effect requires closely examining a company’s key credit weaknesses and focusing on that problem.
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