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 Reports
- One of the most interesting juxtapositions of good news/bad news stories we have seen for some time occurred this week with the dueling announcements by Canopy Growth (CGC: Nasdaq)(WEED: TSX) that it had exercised its options to acquire Wanna Brands and Jetty, followed by the announcement of a rather juicy convertible debt deal. We analyzed the deal by looking at Canopy’s stock prices at the time of pricing and came up with an effective cost of 23.48% (see this week’s Viridian Insights in the Deal Tracker for more details). Of course, the stock is now off more than 11%, making the conversion and warrant exercise premiums seem more reasonable.
- This week’s credit screen looks at the Canadian LPs with market caps over $10M to place Canopy’s credit quality in perspective. The Chart below shows the Viridian Credit Tracker rankings of the fourteen companies. The attached table provides more detail.
- Canopy ranks 10/14 in the Viridian model, which is not terrible for a company with 15 quarters of consecutive negative EBITDA and cash flow from operations. Over that period, it has gone from $835M in net cash to $331M of net debt. Analysts project negative cash flow on an annual basis through FYE March 2026.
- Still, the company’s liquidity is reasonable, with a 1.23x free cash flow adjusted current ratio. Its 9/14 leverage rank is bolstered by its 7th-ranked total liabilities to market cap, a testament to the exuberant pricing of its common stock. Its overall credit score is also helped by its #2 size ranking. Canopy still has ancillary assets to sell.
- Perhaps the asset value and results of its US operations will be the company’s saving grace. That depends on the company’s ability to maintain liquidity long enough to access these values/cash flows via regulatory change. Looks like a pretty close race to us.
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.
- The proposed rescheduling has buoyed market-based leverage stats for the cultivation and retail segment, but the effect dwindled as the week went on.
- Last week, we claimed that the ratification that the DEA would approve S3 had caused a massive credit event. But the effect dwindled as stock prices drifted lower through the week.
- The cultivation and retail sector now has a median debt/market cap of .99x, compared to 1.21x last week, still a decent improvement, if not as dramatic as we might have predicted. Similarly, total liabilities to market cap have declined to 2.21x from 2.60x last week. We anticipate better results to report next week after more earnings roll in. So far, Ascend, GTI, and Verano have reported, and all of them have beaten EBITDA estimates. We are not surprised, as we have maintained for some time that, in the aggregate, analysts were overly conservative in their 2024 outlook.
