Weekly Sector Credit – Cultivation and Retail Sector

• The Chart below shows the credit metrics for the Cultivation and Retail sector.
• Several key aspects jump out:
  1. The last of the 3rd quarter financial results weakened our liquidity measures. The median free cash flow-adjusted current ratio of 0.93x is down from 1.03x last week. It indicates that more than half of the 74 companies lack sufficient liquidity to pay all their short-term liabilities without additional funding. Importantly, however, the lowest quartile figure of 0.25x indicates that at least ¼ of the companies (19 companies) have serious liquidity issues and will require asset sales or new funding to survive the next 12 months.
  2. The median total liabilities to market cap ratio of 1.68x is up from 1.52x last week, but still shows an implied 1.52x asset value coverage (see discussion above)
  3. There continues to be a leverage problem, with over 25% of the sample having debt/2025 EBITDA of more than 4.18x (up from 4.07x last week), a number that is not sustainable even post-S3. The hope is that S3 will raise stock prices sufficiently to allow a re-equitization of the sector.
  4. We also note that the median Funds from Operations / Assets of 0.00x shows that only ½ of the companies are cash flow positive after interest and taxes.