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 01/12/2024
Viridian Capital Chart of the Week: Which Cannabis Stocks are Likely to Outperform In an Up Market?
- Cannabis stocks have been rallying over the last two weeks and will likely pose strong gains in the next several weeks. The release of the full-text version of the HHS recommendation has fostered a market belief that the DEA announcement may be forthcoming soon.
- To see whether there was any regularity behind which stocks outperformed the overall cannabis market during these upswings, we looked at the last 52 weeks and found seven weeks where the MSOS ETF was up more than 10%.
- We calculated the percentage gains for each of these seven weeks for each of the 30 stocks in our weekly credit rankings, which include all of the most significant MSOS. The green bars in the chart below show the average percent gain for each stock during the weeks when the MSOS was up more than 10%.
- We also wanted to check for consistency, so we ran a regression to predict each stock’s return from the MSOS ETF returns. We filtered our list of stocks down to those where the correlation of returns with the MSOS was above 0.7, as that was approximately the correlation required to obtain statistical significance with our small sample.
- The orange line represents the regression beta weight in the regression equation predicting company returns from MSOS ETF returns. The weights can be interpreted as the multiple of the return on the MSOS ETF that each stock is expected to attain. So, for example, the AYR (AYR.A: CSE) value of 2.67 means that we would predict AYR would be up 26.7% if the MSOS is up 10%.
- The four companies on the left side of the graph make sense from a fundamental point of view. All, except MariMed (MRMD: CSE) have a debt/ 2024 Consensus EBITDA of over 3.5x, which is unsustainable in a 280e environment. Accordingly, they would be amongst the biggest gainers from rescheduling and removing 280e. They are also all trading at relatively low (<7x) EV to 2024 consensus EBITDA.
- Trading on the CSE on 1/15/24 (while U.S. markets were closed) gives credence to the likely upswing we will see this week in U.S. cannabis stocks. Traders may wish to position themselves in the stocks most likely to gain in an up market.
