Sector Valuation – Remind us to never again ask if we have hit bottom

• • Valuation metrics have fallen pretty steeply since the beginning of November. Our favorite valuation metric, Adjusted EV/ 2025 EBITDAR, has fallen from 7.00x on 11/1 to 6.22x on 11/29. The more commonly seen EV/2025 EBITDA has taken an even steeper drop from a median of 6.2x to 4.17x.
  • The decline has been shocking even to those of us who have lived through unpleasant cannabis Christmas seasons before.
  • However, we remain convinced that investors will be well rewarded if they position their portfolios to avoid credit issues caused by refinancing stress or other liquidity crises.
  • Look for companies with adequate free cash flow adjusted current ratios and total liabilities to market cap under 2x, and resist the urge to watch the tape. Focus your portfolio on companies with Viridian Credit Tracker model rankings from 1-10.
  • We continue to believe that Armageddon default scenarios based on the large wave of debt maturities in 2026 are hugely overstated. The large majority of MSOs will successfully refinance their debt in the normal course of business. We do caution investors that large maturities present increased potential for accidents.  Talk to us for more detailed analysis and support for companies that are at the highest risk.
  • It doesn’t look like Santa is bringing all of the prized presents this year, but we in cannabis are used to that. More importantly, the potential upside is enormous. Keep in mind that most of the news moving the market is little more than noise.  Predictions based on the identity of the latest proposed inhabitant of some seat on the cabinet have little value.  The uncertainty in the environment is intense and mostly irreducible.  Don’t trade on what you read in your X feed and if you need to monitor anything, we recommend looking at total liabilities/Market cap.  It’s a good early warning indicator and for any portfolio investments where that ratio is above 7, that’s your signal to look deeper.