Valuation Tracker

Weekly Valuation Report – How Much Value Does a Three-Year Maturity Extension Create for Cannabis MSOs?

• We have been using an option-based methodology for several months to estimate the asset value coverage of liabilities for the top MSOs.
• The idea is that a company’s equity can be thought of as a call option on the value of the firm’s assets, with a strike price of its liabilities, an expiration date of the weighted average maturity date of its liabilities, and some volatility and risk-free rate that we can assume. The one unknown in this framework is the asset value. However, we can back-solve using the other variables to find the consistent asset value. This is the market’s unbiased assessment of the firm’s asset value.
• We have been using the December 2026 debt maturity bubble as our expiration date. Still, the analysis, in theory, also provides a direct way to calculate the gain in equity value resulting from an extension in maturities. We can freeze the asset value from our current calculation and then resolve the Black-Scholes formula for the equity value with an extended maturity date.
• The following table calculates the increase in market cap that should result from an increase in the average maturity of the debt from 1.5 years to 4.5 years.

• Clearly, the companies with the weakest asset value coverage stand to gain the most from an extension of the maturity of the liabilities. Curaleaf and Trulieve both have around 2x asset value coverage of liabilities. And with that much coverage, the market should not be that worried about their ability to refinance their debt. Jushi, however, appears to have only 1.23x coverage, so an extension is of much greater value to Jushi than to Curaleaf.
• Our option modeling gives us a direct way to answer the question of how much equity value is added by an extension of maturities. We will be watching to see how the market handles these announcements when they come.