Weekly Sector Credit – Cultivation & Retail – Shrinking # of Companies with more exits to come

• • Long-time readers may have noticed the gradual winnowing of Cultivation & Retail companies in the Viridian Capital Credit Sector Report. We currently have 83 companies in our database, with 30 having sell-side coverage, down from 93 and 36, respectively, two years ago. Noticeable well-known dropouts include MedMen & Hexo.  But we challenge our readers to come up with the rest of the 10 dropouts. Those of us who have lived through the last few years in cannabis should be able to add to this list easily.
  • More reductions are in the works. For example, we are unlikely to see StateHouse or Gold Flora in our data soon. It’s a brutal environment, and more failures are coming. Ironically, some of the worst are likely to be taken private! (See our writeup this week of the final credit draw of Entourage before it goes private). Cannabis is the land of zombies. Companies that have essentially been dead for some time refuse to lay down. The lack of bankruptcy as an option is one reason, while another, perhaps stronger one, is lenders’ lack of desire to take possession of the assets.
  • The good news is that companies that prove they can survive in the current climate (can you say “free cash positive”) will be much stronger for the rigors of managing through this. Consolidation is happening on a smaller scale, with private companies completing intrastate M&A deals. We see this trend continuing, especially in maturing markets.