Hemp sector credit took a turn for the worse, with several key indicators showing deterioration:  Median Total liabilities to market cap for the 43 companies increased from 1.15x to 1.53x, with a similar decline seen across the quartiles. The median Z score for the industry also dropped significantly from -4.89 to -7.61. Florida’s Senate Bill 1698 was approved by the House and was sent to the governor. The bill bans hemp-derived products containing delta-8 and delta-10 and places caps on intoxicating delta-9 products. Critics of the bill allege that it may destroy the state’s hemp business. Other states are also considering stricter restrictions on intoxicating hemp products. These issues were expected to be cleared up in the new Farm Bill whenever Congress passes it.

The chart shows that sectors with higher median liquidity scores also tend to have higher median leverage. Perhaps the simplest view of this phenomenon is that companies with low FCF-adjusted current ratios tend to have large negative free cash flows, and that, in turn, makes them poor candidates for leverage.