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 09/22/2023
Viridian Capital Chart of the Week: Who Has Gained the Most from Rescheduling Talk?
- The potential impacts of rescheduling have dominated cannabis discourse over the last four weeks. MSOs and other plant-touching companies have had their greatest percentage gains in two years despite a meaningful correction last week.
- The Charts delve into the trailing 4-week percentage gains in market capitalization experience by the groups shown. The analysis is based on the Viridian Value Tracker database of 324 companies broken into 12 subsectors of the cannabis industry. Cultivation and Retail companies have clearly experienced the greatest gains of 46% across all countries. U.S. gains have been higher at 59%, while Canadian sector companies are only up an aggregate of 24%.
- The hemp sector is up approximately 26% on speculation of potential positive changes to the farm bill, which is scheduled to expire on September 30, 2023.
- Biotech/Pharma and Psychedelic sectors have registered declines of 6% and 1%, respectively, as investment flowed back into cultivation and retail stocks. Real estate sector companies, which include large lenders and sale-leaseback providers, are up 6% due to the potentially positive credit quality impact of rescheduling on their borrowers.
- The bottom graph separates the 94 cultivation and retail sector companies into groups based on Total Liabilities to Market Cap at the beginning of the 4-week period (8/25/23). This ratio is the most highly weighted leverage indicator in the Viridian Credit Tracker credit ranking model.
- The green bars depict percentage increases in market cap and clearly show that companies with higher market leverage have experienced larger percentage gains than their less leveraged competitors. This makes sense for two reasons: 1) higher-levered companies stand to gain more from a re-opening of the cannabis capital markets and 2) Lower tax payments will give larger and more financially robust MSOs more capital to deploy in M&A, thereby increasing the likelihood of an M&A takeout.
- The orange line (measured on the right axis) shows the percentage of total sector market cap represented by companies in each leverage bucket. Note that approximately 86% of the total sector market cap is represented in the two middle leverage groups, which have a weighted gain of 44%.
