Weekly Valuation Tracker
Viridian highlights a specific industry sector and provides a deep dive into valuation metrics and comparable company valuations for public companies operating in that sector. The Weekly Valuation Tracker provides proprietary, actionable valuation data.
Weekly Valuation Report – Return on Invested Capital (ROIC) US MSOs vs Canadian LPs
- The Chart below shows the two multiplicative components of ROIC: After-tax Operating Income/Revenue and Revenue/Invested Capital.
- The green dots represent the US MSOs, while the red dots depict the Canadian LPs. The black line represents the combination of the two variables that results in a ROIC of 10%, a value we believe is about the minimum WACC (weighted average cost of capital achievable in the current cannabis market.
- Note that there are two ways to improve ROIC: improve profitability or improve capital efficiency.
- The four companies that have ROICs significantly above the 10% frontier —High Tide (HITI: Nasdaq), Decibel (DB: TSX), and Glass House Brands (GLASF: OTCQX) —got there by quite different means. High Tide has relatively low after-tax margins but the highest sales/invested capital of any company on the Chart. Jushi has middle-of-the-road margins but the second-highest Revenues / Invested Capital. Decibel mixes the third-highest asset productivity with better-than-average margins. Glass House has the highest projected after-tax operating profit/ Revenues.
- The Chart clearly shows that different operating models can produce financial success. Still, companies that have neither strong after-tax margins nor solid revenue per invested capital will fail to earn their cost of capital. We would expect the market to eventually price this accordingly.
- ROIC is not a static number, and operators who cut operations when they are not earning sufficient returns on capital will, over time, increase their overall ROIC and be rewarded.
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Valuation Tracker By Sector
The Viridian Value Tracker is the most comprehensive valuation product in the industry.
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- A broad set of 12 valuation measures assures applicability, regardless of whether the company has analyst coverage or revenues. The typically presented EV/ Projected Revenues and EV/ Projected EBITDA are available for less than 1/3 of the cannabis companies we track.
- Most valuation studies present only the average valuation measures, while the Tracker goes one step further and shows the distribution of values (the quartiles, median, and dispersion) for each measure. This gives users a more complete view of how companies in the cohort group are valued.
Sector Valuation Report – Stock Performance of Lenders vs Borrowers
- The Chart below shows the indexed average price movements of a group of lenders including Chicago Atlantic, NewLake Capital Partners, AFC Gamma, and IIPR, compared to the MSO group, including Curaleaf, GTI, Trulieve, Verano, and Cresco.
- We have graphed IIPR separately, as it took a big hit early in the year with the default of Pharmacann and other major tenants.
- Similarly, the MSO group took a deep dive right after the election, primarily due to underperformance by Tuleive and Verano based on their Florida exposure.
- For most of the last twelve months, the lender group has significantly outperformed, but since Trump’s announcements, the MSO group has caught fire and is now outperforming.
- Investors should hedge their cannabis bets with an allocation of lender equities, which are currently trading at discounts to book value.
This Chart is Only Available to Higher Tier Memberships
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Sector Valuation Report – Stock Performance of Lenders vs Borrowers
- The Chart below shows the indexed average price movements of a group of lenders including Chicago Atlantic, NewLake Capital Partners, AFC Gamma, and IIPR, compared to the MSO group, including Curaleaf, GTI, Trulieve, Verano, and Cresco.
- We have graphed IIPR separately, as it took a big hit early in the year with the default of Pharmacann and other major tenants.
- Similarly, the MSO group took a deep dive right after the election, primarily due to underperformance by Tuleive and Verano based on their Florida exposure.
- For most of the last twelve months, the lender group has significantly outperformed, but since Trump’s announcements, the MSO group has caught fire and is now outperforming.
- Investors should hedge their cannabis bets with an allocation of lender equities, which are currently trading at discounts to book value.