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 12/08/2023
Viridian Capital Chart of the Week: Which Companies Have the Most Upside and Downside From a DEA Announcement?
- The MSOS ETF is now up 41.4% from the August 30, 2023, HHS rescheduling announcement, but it has fallen significantly from its peak gain of 85.0% in mid-September. The Viridian Chart of the Week looks at the potential upside and downside of the top 15 MSOs concerning a DEA announcement on rescheduling.
- The blue bars show the percentage gain in each stock since the HHS announcement, and the graph is arranged from the smallest gains to the largest gains.
- One way to look at the downside risk from an adverse DEA ruling is to hypothesize that the companies would probably at least give up any gains they have made since the HHS announcement. Two companies, Shwazze (SHWZ: OTCQX)(SHWZ: Cboe) and Cannabist (CBST: Cboe)(CBSTF: OTCQX) have experienced declines of 18% and 16%, respectively, from their pre-HHS announcement levels. Since they have gained nothing from the announcement, one might hypothesize they have less to lose from adverse developments. Two others, TerrAscend (TSND: TSX)(TSNDF: OTCQX) and MariMed (MRMD: CSE)(MRMD: OTCCX) have experienced minimal gains of 1% and 2% respectively. The rest of the group has shown much more significant gains of between 13% for 4Front (FFNT: CSE)(FFNTF: OTCQX) and 177% for AYR Wellness. The companies on the right side have experienced astounding gains in the short period since HHS, and one might expect that they would be the biggest losers from any negative DEA news.
- The top of the orange bars shows each stock’s maximum gains since HHS. One might reasonably assume that upon a DEA ratification of Schedule 3, stocks would at least return to the peak gains after HHS. For some of the companies on the chart, gains on this basis would be minimal. Glass House (GLASF: OTCQX) and Ascend (AAWH: OTCQX are within 9% and 4%, respectively of their maximum prices since the HHS announcement. For other companies like Cannabist and Trulieve (TRUL: CSE)(TCNNF: OTCQX), the potential gains could be highly significant at 252% and 195%, respectively.
- Viridian believes the gains from Schedule 3 would likely be much more significant than retracing back to the peaks since the HHS announcement. We consider a reasonable next upside is the price levels achieved on 11/25/22 after the House passed the SAFE Act for the seventh time. The top of the green bars represents the gains achievable at those prices. Eight of the fifteen stocks could have gains of over 280% on this basis. These gains, in turn, are still far lower than the gains that might be achieved if prices went back to the 7/9/21 levels after the Schumer/Booker proposal was introduced and the multiples for the top ten MSOs were 15.7x NTM EBITDA vs. 7.6x currently.
- The chart provides investors with a guideline for the upside potential of a positive DEA announcement vs the downside risk of less favorable DEA news.
