Weekly Sector Credit – Year-end credit stats for the Cultivation and Retail sector

• 2024 has not been a kind year for cultivation and retail sector credit quality. Many of the MSOs started out the year overleveraged and only became more so during the year since the equity window was shut and debt was the only source of liquidity in town.  Still, liquidity remains strained:  the .66x free cash flow adjusted median for the 81 companies suggests that more than half of the companies will need additional financing in the coming year.
• Median debt/2024 EBITDA of 3.4x is higher than we believe sustainable in a 280e world and closing in on the 4x we view as the borderline of prudent even absent 280e. Still, the median total liabilities to market cap of 1.89x suggests approximately 1.34x asset value coverage of total liabilities based on our option valuation methodology and that is not terrible.
• 2025 is setting up to be an exciting year for cannabis credit. Companies will want to get a head start on refinancings in 2026, but high uncertainty prevails regarding when any S3 help will arrive to buoy equity prices and improve market psychology.  We believe that most required refinancings will be accomplished without undoing strain, but the longer psychology remains negative, the higher the chances for an “accident.”