Weekly Sector Credit

• The chart below shows the median values of the two most essential credit factors in the Viridian Credit Tracker Credit model by sector. The number in parenthesis indicates the number of companies aggregated.
• The red line shows the model’s top leverage indicators, total liabilities to market cap. Cultivation and Retail has the highest leverage mostly because it has the most hard assets to use as debt collateral and the highest level of cash flow to service debt. Conversely, little leverage is employed in the Psychedelic sector to the asset characteristics, which make for less desirable loan collateral as well as the lack of cash flow to service debt.
• The green line shows a bespoke Viridian liquidity indicator, the annualized free cash flow adjusted current ratio. This ratio takes the standard current ratio and adds an annualized free cash flow to the numerator. We have changed our method of annualizing free cash flow to weight the current quarter 50% and the LTM free cash flow 50%. The free cash flow adjusted current ratio gives a good indication of whether a company will need to seek additional financing in order to discharge its current liabilities.
• The sector with the lowest liquidity indicator is Psychedelics. This is no surprise since nearly all of the 21 companies in the sector are pre-revenue and have negative free cash flow due to drug discovery costs and the expense of conducting clinical trials. Cultivation and Retail have the second strongest measure at 0.62x, but the ratio still indicates the need for additional financing.