Credit Tracker

Weekly Credit Report – What’s happening with net debt?

• There are many different ways to view leverage; Viridian utilizes four metrics to access leverage in the Viridian Credit Model (Total Liabilities/ Mkt Cap, Assets/Liabilities, FFO/Total Liab, and adj Debt/2025 EBITDA). We favor Total Liabilities to market cap for reasons we have expounded on previously in depth. Chief among these is the fact that it can be transformed via option valuation into a market-based assessment of asset coverage of liabilities.
• Our favorite leverage indicator has shown significant deterioration for the group, as liabilities remained relatively constant while market caps plummeted.
• But how about a simpler view? The graph below shows the percent change in net debt for 15 MSOs. Note, for graphing purposes, we removed Grown Rogue, which eliminated net debt over the period.
• In an environment where growth is essentially stalled, and market caps are at all-time lows, can we use a more straightforward measure of credit like the percentage increase or decrease in net debt over the last twelve months?
• It’s not a metric without issues. For example, Cannabist has had the most significant decrease in net debt through asset sales, and yet not many credit observers would suggest its credit quality has meaningfully improved. Verano is the opposite case, with a significant increase in net debt but several newly acquired assets to go with it.
• Still, GTI’s performance looks all the more impressive when viewed this way. It reduced net debt by 12% while also paying all of its 280e taxes. Trulieve had a similar improvement in net debt but did so by deferring taxes.
• Had everyone known how the macro and political environment would play out, would companies have pulled in their horns more sharply? We think the answer is probably yes.