Weekly Credit Tracker
Credit ratings are not currently available for public cannabis companies leaving companies, lenders and investors with a gap of information. The Viridian Cannabis Credit Tracker fills this gap. The model uses 11 market and financial statement variables to discern 4 key credit factors: Liquidity, Leverage, Profitability, and Size, to provide credit/liquidity analysis for over 370 public Cannabis/Hemp companies.
Weekly Credit Report – Ranking the Canadian Cannabis Operators
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- Last week, we compared the U.S. MSOs and the Canadian LPs based on two basic credit metrics —Debt/EBITDA and EBITDA/Interest expense. One major takeaway from that analysis is that Canadian LPs generally have lower leverage turns and higher interest coverages.
- This week, we expanded the sample of Canadian Operators to include all those in our Credit Tracker database with market caps over $25M. The Chart below shows our rankings. The green line shows the Viridian Credit Rank, measured from 1 to 13, where 1 is the best and 13 is the worst. The black line depicts our liquidity ranking, while the red line shows our leverage ranking.
- Leverage and liquidity are the two most heavily weighted factors in our overall credit score, but we also consider Profitability and Size. Of these last two, Size is more highly weighted in our model for several reasons: 1) size is correlated with the number of business units, and indirectly therefore with diversification.2) Larger companies tend to have more ancillary assets that they can sell if to pay down debt if needed. 3) Larger companies tend to have more established business relationships, which help to withstand adverse conditions.
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- Readers may remember that last week’s Chart showed Tilray amongst the worst on interest coverage and leverage measures, and it may therefore be surprising to see it in 4th place in our overall model. Tilray’s assets and market cap tower above the other companies on the list, nearly twice those of the nearest competitor, Cronos.
- But size isn’t everything, as shown by Cannara Biosciences (LOVE: TSX). Ranked #10/13 on Size, LOVE makes up for it with excellent (#5) liquidity measures and top profitability scores.
- Canopy Growth at #11/13 is hardly surprising. Despite decent near-term liquidity, the company ranks #12 in leverage and #13 in profitability
- One surprise is the strength of the Canadian companies on our favorite leverage measure: total liabilities/market cap. The worst reading of 1.19x from Decibel Cannabis is better than all but the top 6 of the 25 US MSOs we rank every week. This is a testimony to two things: the cash flow damage of 280e on US companies, and 2) the value of trading on a senior exchange.
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Credit Tracker By Sector
Credit ratings are not currently available for public cannabis companies leaving companies, lenders and investors with a gap of information. The Viridian Cannabis Credit Tracker fills this gap. The model uses 11 market and financial statement variables to discern 4 key credit factors: Liquidity, Leverage, Profitability, and Size, to provide credit/liquidity analysis for over 370 public Cannabis/Hemp companies.
Weekly Sector Credit – Biotech/Pharma Sector
- The Chart below shows the credit metrics for the Biotech/Pharma sector
- Several key aspects jump out:
- Liquidity is generally poor for more than ½ of the 39 companies in the sector. The median free cash flow-adjusted current ratio of -.03x indicates that more than half of the sector participants. will require additional funding or asset sales to cover their current liabilities.
- The Median Funds from Operations to Total Liabilities of -.42X shows that more than half of the participants have negative cash flow.
- Companies in the sector tend to be rather small, with median total assets of $8M and market caps of $16M.
- The good news is that the median total liabilities-to-market cap is only 0.43x, showing solid asset value coverage of debt.
- All of the above factors argue in favor of convertible preferred or even convertible debt financing.
Weekly Sector Credit – Biotech/Pharma Sector
- The Chart below shows the credit metrics for the Biotech/Pharma sector
- Several key aspects jump out:
- Liquidity is generally poor for more than ½ of the 39 companies in the sector. The median free cash flow-adjusted current ratio of -.03x indicates that more than half of the sector participants. will require additional funding or asset sales to cover their current liabilities.
- The Median Funds from Operations to Total Liabilities of -.42X shows that more than half of the participants have negative cash flow.
- Companies in the sector tend to be rather small, with median total assets of $8M and market caps of $16M.
- The good news is that the median total liabilities-to-market cap is only 0.43x, showing solid asset value coverage of debt.
- All of the above factors argue in favor of convertible preferred or even convertible debt financing.
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