Viridian Key Insights

        VIRIDIAN INSIGHTS

• HAS TEXAS COME TO ITS SENSES?
  • Things seemed pretty bleak for hemp in Texas after the Texas Senate again ignored Governor Abbott’s instructions to regulate hemp by the August 18^th passage of SB6, which would virtually eliminate the sale of all intoxicating hemp products.
  • On August 20, the bill was referred to the Texas House Public Health Committee. If the bill is heard and passed in committee, it would then move to the House floor for a vote.
  • So What’s the Good News Here? The committee has yet to schedule a hearing, and if the committee doesn’t act soon, SB6 will die at the end of the 2^nd special session in mid-September.
  • If passed by the House, it again goes to Governor Abbott, who vetoed the first draconian hemp elimination bill.
  • So there is at least a ray of sunshine for the hemp crowd in Texas, but the outcome is still unpredictable.
• THE RESCHEDULING TOPIC NO ONE IS TALKING ABOUT
  • The Viridian Chart of the Week on August 18, 2025, reprinted below, detailed the size of unpaid 280E liabilities of the top MSOs. Aggregating over $2 billion and representing more than 1x EBITDA for most players and over 1x market cap for a select few, these are numbers not to be ignored. They now represent a larger liability than the remaining 2026 debt maturities.

• • The big question is what happens to these liabilities if and when S3 actually arrives. The prevailing view among several top law firms is that these liabilities do not simply disappear. Instead, the most likely outcomes are that they will be settled, negotiated down, or allowed to drift away due to the statute of limitations.
  • We have heard several MSO spokespeople reference the precedent of Harborside, which in 2022 settled over $22 million of tax liabilities for only $5.8 million, an amount they agreed to pay over nearly ten years. It is essential to note that the IRS never agreed to a lower liability figure; it only, as a matter of enforcement reality, agreed to the settlement because, as they say, you can’t get blood from a turnip. The idea that companies will be able to settle these liabilities for pennies on the dollar seems somewhat naïve.
• GAUGING THE RISK OF THE 2026 DEBT MATURITY BUBBLE
  • Much has been made of the upcoming wave of cannabis debt maturities in 2026. The sheer size is undoubtedly intimidating. The companies pictured on the graph below collectively have approximately $1.5 billion of debt maturing in 2026. (IAnthus maturities are actually in 6/27, but close enough!). This figure used to be over $2.3 billion, before Gold Flora, 4Front, and AYR flamed out, and Cresco entered an agreement to refinance its secured term loan. Putting that figure into perspective, $1.53B is still more than total cultivation & retail sector capital raises for any year since 2019, except for 2021 ($4,8B) and 2022 ($1.7B)
  • Viridian is generally more constructive about the issue than most other industry observers. We observe that in the high-yield bond market, it is virtually never the case that debt is paid off in cash. It is generally refinanced, OR the company is forced to restructure. Obviously, given the lack of prepackaged bankruptcy (or any bankruptcy, for that matter), restructuring is rightfully a prospect to be feared in the Cannabis Industry.
  • So, how do we gauge the risk of something going wrong in 2026? Refinancing risk is a peculiar mixture of market psychology and financial realities.
    • The green bars show the 8/15/25 market-implied asset coverage of total liabilities. We arrive at this by viewing the equity as a call option on the asset value of the firm, with a strike price equal to its liabilities, and assuming maturities of 2026, as well as a 30% volatility and a risk-free rate of 4.25%. This provides us with all the elements of the Black-Scholes option pricing formula except for the current asset value. By iterating on the solution of the BS model, we can find the market’s assumption for asset value. The importance of this data point should be obvious. For companies with less than 1x asset coverage of liabilities, debt providers are effectively making an equity bet. They do not have adequate asset value coverage to fall back upon.
    • The red line represents the Viridian Capital credit ranking, which considers four key credit factors: Liquidity, Leverage, Profitability, and Size. Refinancing will be more difficult for weaker credits (higher numbers). Companies with ranks of under 16 are in the top half of the Viridian-ranked universe of credits.
    • The black dots represent the multiple of market cap that the 2026 debt maturities represent. Clearly, the larger the debt maturities relative to the market cap, the more difficult we would expect refinancing to be.
    • The ten companies to the right of Jushi (JUSHF: OTCQX) on this graph represent higher risk. They have less than 1x asset value coverage, generally poor Viridian Credit Ranks, and several, such as IAnthus and Body & Mind, have maturing debt that is a multiple of their market capitalization. Companies in this position represent only about $170M of the maturing debt.
    • Conversely, the fourteen companies on the left-hand side of the graph represent lower refinancing risk. They have solid asset coverage, strong Viridian Credit Ranks, and maturing debt that is less than 1.25x times their market capitalization. These companies represent $1.36 billion of the $1.53 billion total (70%), and we believe they should all be able to refinance their maturities without undue hardship. There is always the possibility of an “accident” where negative psychology meets illiquid funding markets, and refinancings that appear favorable on paper fail to materialize. The offered side quotes on Curaleaf, Verano, and Trulieve, the solid credit MSOS with the most remaining 2026 maturities, all tightened significantly this week after the Cresco announcement and the market equity run. Investor psychology appears to have shifted, with a growing belief that these names will be able to refinance their maturities without undue hardship.
    • The bottom line is that market psychology is crucial in debt refinancing, and it has become more positive for the larger, systematically important MSOs.

• FOUR KEY GRAPHS THAT SEEK TO MAP THE OPTIONS AVAILABLE TO THE MSOs BASED ON THEIR VALUATION, LEVERAGE, AND LIQUIDITY
  • The first two graphs present different versions of EV/EBITDA on the vertical axis and Debt/EBITDA on the horizontal axis.
  • The first graph presents our latest view of the most appropriate valuation and financial statement-based leverage metrics: Adjusted Enterprise Value (EV) / 2026 EBITDAR and Adjusted Net Debt / 2026 EBITDAR. In calculating Adjusted Net Debt, we make several key assumptions: 1) Leases that are included on the balance sheet are considered debt. We view most leases in the cannabis space as equivalents to equipment loans or mortgage loans. While it is true that a lease default does not necessarily trigger a cascade of events leading to bankruptcy, the distinction is often meaningless in the Cannabis Industry due to the mission-critical nature of many long-term leases and the absence of bankruptcy protection in This Sector. 2) We consider any accrued taxes (including uncertain tax liability accounts listed as long-term liabilities) in excess of the most recent quarterly tax expense to be debt. Our calculation of enterprise value is now market cap plus debt plus leases plus tax debt minus cash. We now use EBITDAR rather than EBITDA, as lease expense is deducted prior to calculating EBITDA.
  • Our adoption of new metrics tends to make the companies look less cheap and more leveraged.
  • The second graph utilizes EBITDA and employs traditional calculations for both debt and enterprise values, excluding leases and taxes.
  • Surprisingly, seven of the companies on the enhanced metric chart are still above 3x leverage, which we have identified as the boundary of sustainability in a 280e environment. Five companies now exceed 4x leverage, which we believe will be close to the maximum sustainable post-280E.
  • Glass House is a valuation outlier. We have been positive on Glass House for quite a while, but the multiple spread to the nearest competitor is straining our resolve. We note GLASF’s $25M at the market equity issuance facility as another factor likely to restrain price appreciation. Finally, the sharp downward revisions to revenues and EBITDA for the second half of 2025 are concerning, as they certainly do not align with the picture the company originally painted.

• The third graph examines leverage through the lens of total liabilities to market capitalization. We believe this is the single best measure of leverage because it is a direct reflection of the market’s assessment of a company’s assets in excess of its liabilities, and it is sensitive to changes in the market’s perception of a company’s future prospects.
  • On the bottom left are companies with an Adj. EV/2025 EBITDAR ratio of under 7x and total liabilities to market cap of under 2x. The group includes GTI, Trulieve, Verano, Cresco, and Vext. Companies in this quadrant are right to consider stock repurchases or using cash in acquisitions. They can afford some additional debt and can take advantage of the ongoing dislocation in equity prices.
  • Between 2x and 5x total liabilities to market cap, we find MariMed and Jushi. Jushi is interesting because its liabilities include nearly equal amounts of 2026 maturities of debt and uncertain tax liabilities.
  • On the right lies Cannabist and Ascend, both between 6x and 10x, a range that signals stress if not distress. Ascend appears to be looking much better than it did three weeks ago, thanks to the rally in its stock.
  • AYR, 4Front, and Schwazze are now off the chart to the right, befitting their distressed status. Our recent work, which utilized option modeling of equity prices, showed that the market believes each of these companies has significantly less asset value than its liabilities.

• The fourth graph introduces the free cash flow adjusted current ratio liquidity measure into the mix. Note that we have recently modified our treatment of this ratio by removing uncertain tax liabilities from current liabilities, where they were previously placed. The result is that only Jushi and Cannabist are significantly below 1x free cash flow adjusted current ratio.
• On the top left, we find companies with adequate liquidity and low market leverage, including GTI, Trulieve, and Glass House. Companies in the lower right generally have constrained liquidity and high leverage, a potentially dangerous combination in a capital-constrained environment. The only company presently on the chart with these symptoms is Cannabist.

• VALUATION METRICS SUGGEST STRONG UPSIDE POTENTIAL FROM ANY REGULATORY REFORM, BUT CONTINUING MARKET SKEPTICISM
  • Recent rallies have raised the aggregate EV/NTM for the top 11 MSOs back to a level above that of August 25, 2023, the date the HHS announced its support of S3. The current reading is the highest since the election. Trump’s announcement that a decision on S3 would be forthcoming is the most significant news in cannaland for quite some time. Still, although stock prices, as represented by the MSOS ETF, have risen 62% in the last month, there is tremendous upside left to be captured. The market has predictably reacted with some skepticism, and commentators have even gone so far as to question whether S3 was a good thing for the industry (it IS).
  • So how much upside is left to be gained? We do not believe that multiples will return to their 2021 peaks for several reasons, including slowing growth, competition from hemp, wholesale pricing pressure, and a weary consumer. Moreover, some of the changes to facilitate wider bank acceptance, uplisting, credit card usage, credit ratings, and custody of stocks, among others, will require further reform measures, such as the SAFER Act or a variant, and possibly a new “Bondi memo”.
  • Nonetheless, we believe that a return to multiples peaking in the 13x range is possible, which would provide an additional 85% return from current levels.
  • Trump has finally been heard from, but tremendous uncertainty remains. Trump is anything but predictable, and anyone who wants to bet on when this happens (or if, for that matter) is kidding himself.

• CANNABIS STOCK VOLUME AND LIQUIDITY REACH MULTI-YEAR PEAKS
  • The average daily dollar volume of $47 million for the week ending August 29 is down from the 52-week peak of $68 million, but still higher than any other week since the election. The current Days to Trade the Market Cap (DTTMC) of 309 similarly represents significantly better than average liquidity. A DTTMC of 309 implies that an investor who acquired a 5% position in the stock, assuming they wanted to be less than 25% of the average daily dollar volume, would require 62 days to trade out of their position, a remarkable figure given the 250-day average for the preceding 52 weeks. It’s almost like a real market!

• GIVING CREDIT WHERE CREDIT IS DUE
  • The chart below displays our updated credit rankings for 25 U.S. cannabis companies as of August 29, 2025. We have reduced our ranking set to 25 companies from 30 by eliminating AYR, CLS, FFNT, GRAM, and SHWZ. Each of these companies is either in receivership (FFNT, GRAM), in restructuring discussions (AYR & SHWZ), or has out-of-date financials (AYR, FFNT, GRAM, SHWZ). Additionally, each trade is significantly out-of-the-money, with stock price movements driven primarily by volatility rather than valuation. We will return to our usual practice of noting ranking changes next week.
  • The blue squares show the offered-side trading yields for each Company. Yields on Trulieve, Curaleaf, and Verano have decreased significantly over the last two weeks, driven by the Cresco refinancing announcement and the bullish tone in the cannabis equity markets.