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 12/09/2022
Where Do Tier-One Valuation Multiples Go From Here?
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- Over the last four weeks, the total enterprise values of the tier-one MSOs shown in the graph have increased by 20.5% due to sharp increases in stock prices. Total enterprise values are now down approximately 20% from the beginning of 2021.
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- The chart depicts the enterprise value to next twelve-month EBITDA multiples for each of the top five MSOs, indexed to 12/31/21. The top green line, for example, represents Cresco Labs (CL: CSE)(CRLBF: OTCQX), whose current multiple of NTM EBITDA is 173% of its 12/31/21 figure (8.3x vs. 8x).
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- Cresco and Trulieve (TRUL: CSE)(TCNNF: OTCQX) multiples are now significantly above their year-end 2021 values, and the group multiple on 12/2/22 was 10.6x compared to a 12/31/21 value of 10.4x. The decline in value is wholly attributable to reductions in consensus estimates of next twelve months EBITDA.
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- The multiples of Green Thumb (GTII: CSE)(GTBIF: OTCQX) and Verano (VRNO: CSE)(VRNOF: OTCQX), the bottom two lines on the graph, have not yet recovered to 12/31/21 levels. Still, their combined enterprise values have declined by only 13% vs. the group average of 20% because analysts have only reduced their EBITDA estimates by around 3% during the year.
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- Now that multiples have returned to their beginning-of-the-year levels, how much more improvement can we expect? Multiples during 2021 averaged over 15x and hit peaks of over 20x early in the year when hopes for legalization were highest.
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- The passage of the SAFE+ bill (which we now feel is highly probable) is likely to be the catalyst that takes multiples back to the 15x+ range. The initial jump may be less than 50% as we believe the more critical indirect impacts of the bill’s passage, such as eventual uplistings, may take time to develop.
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- It is important to note that the SAFE+ act is only the opening act. Down-scheduling to a level that removes 280e will have a more significant financial impact on the tier-one MSOs. We do not anticipate full federal legalization to occur anytime soon. Moreover, we think that maintenance of state-run limited license regulation is a positive for the companies on this chart.
