Viridian Key Insights

        VIRIDIAN INSIGHTS

• THE VIRIDIAN CHART OF THE WEEK, PROJECTING SIGNIFICANT INDUSTRY CONSOLIDATION, GOT TREMENDOUS RESPONSE
  • Our write-up questioned whether such consolidation was an opportunity, a threat, or an inevitability. Most respondents agreed with our analysis that the industry will undergo drastic consolidation. Some, however, denied that descheduling will accelerate this trend.
  • Below, we present an analysis of the current market structure of cannabis using Michael Porter’s Five Forces Framework, which decomposes the forces operating on an industry into the threat of substitutes, the threat of new entrants, the power of suppliers, and the power of buyers, which together influence the internal rivalry and degree of price competition in the industry.
  • At the bottom of each force discussion, we comment on how legalization will impact the force and whether that impact will foster consolidation.
  • Suffice it to say, we believe legalization will spur tremendous consolidation, which in turn will benefit the industry in several ways: greater price stability through an oligopolistic structure, centralization of production and distribution, both of which improve margins and capital efficiency, thereby increasing ROIC.
  • The news isn’t all good, though. If descheduling were to occur without a phase-in period and without attempting to buffer the impact on limited-license state programs, it would be highly disruptive, likely causing a wave of facility shutdowns, write-offs, and layoffs. The retail side of the business would fare better, at least initially, as we would expect DTC sales to take some time to develop. This is why we believe the most important thing we’ve learned in our years in cannabis is “be careful what you wish for.”

• Threat of Substitutes – Very High

  • Illicit Market: The largest and most immediate substitute. Illicit operators face no compliance costs or taxes, and can undercut legal players by 30–50%. Consumer willingness to buy illicit products remains high due to habit, price sensitivity, and, in some cases, quality parity.
  • Hemp-Derived Intoxicants: Delta-8, delta-10, and THCA products (often sold in gas stations and online) are federally legal under the 2018 Farm Bill loophole and are virtually perfect substitutes for cannabis flower and vapes. They carry lower production costs and fewer regulatory burdens.
  • Other Recreational Substitutes: Alcohol, tobacco, and in some cases, prescription or over-the-counter pharmaceuticals compete for the same consumer leisure or therapeutic dollar.
  • Overall: This force is very strong — substitutes put a permanent cap on pricing power and force legal operators into constant margin pressure.
  • Consolidation Drivers/Impact: Larger, more efficient operators are better able to withstand ongoing margin compression. Descheduling/ legalization will accelerate the drive for roll-ups and M&A to create centralized production, distribution, and marketing. Consolidation will eventually foster a more oligopolistic price structure.

  Threat of New Entrants – Moderate to High (State Dependent)

  • Licensing Barriers: In theory, cannabis markets are shielded by limited-license regimes. In practice, states often over-issue cultivation or retail licenses (e.g., Michigan, Oklahoma), creating oversupply.
  • Capital Requirements: Building an indoor facility costs ~$400 per sq. ft., with millions in capital expenditures required for cultivation
  • Regulatory Hurdles: State-by-state rules slow new entry, but hemp-derived entrants largely circumvent these barriers.
  • Overall, entry into licensed markets is difficult, but trivial in the case of hemp-derived substitutes or illicit channels — making this force stronger than it appears on paper.
  • Consolidation Drivers/Impact: After descheduling/legalization barriers fall and tobacco, alcohol, CPG, and Pharma will enter, shifting power to larger players with capital and nationwide distribution networks. Existing MSOs merge to bulk up before these new players enter the market.

  Bargaining Power of Suppliers – Moderate

  • Labor: Fragmented, largely non-unionized, and specialized but replaceable. Worker turnover is high, limiting labor’s bargaining power.
  • Nutrients/Fertilizer/Equipment: These suppliers are dependent on cannabis demand and lack leverage to raise prices materially.
  • Energy: The most powerful supplier. Indoor grows are energy-intensive, and cannabis operators are price takers on local utility rates. Energy cost spikes directly erode margins.
  • Real Estate/Financing: With federal illegality, cannabis companies often rely on expensive sale-leaseback arrangements (e.g., IIPR) and high-cost debt, which gives landlords and lenders unusual power relative to other industries.
  • Overall: Supplier power is moderate — weak in raw materials, strong in energy and capital access.
  • Consolidation Drivers/Impact: Descheduling/legalization reduces the cost of capital through uplistings and improved access to banking & securities. Larger firms tend to benefit differentially from these moves.

  Bargaining Power of Buyers – Increasing

  • Retail Consumers: Currently, brand loyalty is weak. Consumers shop on price and THC percentage, and can easily shift to cheaper or illicit alternatives.
  • Retail Dispensaries: In vertically integrated markets, MSOs control both cultivation and retail operations, thereby reducing the leverage of buyers. But in wholesale-heavy states, retailers wield power by choosing which brands to stock.
  • Large Buyers: Emerging multi-state wholesale distributors (and in hemp-derived products, convenience store chains) exert significant bargaining power by controlling shelf space.
  • Overall, buyer power is rising, particularly as oversupply provides consumers and retailers with numerous
  • Consolidation Drivers/Impact: Descheduling/ legalization will eventually allow national retailers to sell cannabis products. Only firms with nationwide logistics will effectively supply those buyers, reinforcing consolidation pressure.

  Industry Rivalry – Very High

  • Commodity Dynamics: Cannabis is a perishable commodity, as unsold flower loses potency, aroma, and value. Like airline seats, the incentive is always to sell inventory even if it requires price discounting.
  • Fixed/Semi-Fixed Costs: Cultivation has high fixed and semi-fixed costs (especially energy for lights and HVAC). Once a grow is built, operators tend to run it at full capacity, covering variable expenses and making a contribution towards fixed costs. This tends to intensify oversupply.
  • Exit Barriers: Specialized grow facilities and equipment have little alternative use value, locking weak competitors into the market and prolonging price wars and supply gluts.
  • Growth and Profitability: Industry growth is slowing. 2025 is expected to show declining revenues among top MSOs, with only ~7% rebound projected in 2026 as Pennsylvania, Virginia, or Florida flip to adult use. Long-term growth is CPG-like (population + inflation) as the illicit market is converted to a legal one.
  • Overall, the rivalry is cutthroat due to oversupply, price compression, and trapped capacity.
  • Consolidation Drivers/Impact: Rivalry becomes national, not state-by-state. The weakest competitors exit, mid-tier firms merge for survival, and scale advantages (lower cost per pound, better logistics, stronger brands) drive consolidation

  Summary: What the Five Forces Tell Us About Consolidation

  • Before legalization: Fragmented, state-by-state markets with regulatory moats allow lots of small to mid-tier operators
  • After descheduling: Forces flip toward economies of scale, lower capital costs, and national distribution requirements
  • Result: The Five Forces indicate heavy consolidation, with parallels in the beer, tobacco, and pharmaceutical industries.
  • Thousands of small local operators with a handful of dominant national and international firms. Survivors include some of today’s largest MSOs with strategic entrants from alcohol, CPG, and tobacco.

• STATES CONTINUE TO CRACK DOWN ON HEMP IN ADVANCE OF THE FARM BILL
  • Texas Governor Abbott finally turned to executive orders to effectuate his plan to regulate rather than eliminate hemp after becoming frustrated with the legislature’s failure to do so following two special sessions.
  • In another unusual development, the Maryland appellate court ruled that d8 and d10 were never legal outside of licensed cannabis businesses.
  • The table below shows recent developments in six states and summarizes their current positions on four hemp products: CBD, D8/D10 and other synthetics, THCA, and hemp-derived THC beverages.

• • THE 2026 DEBT MATURITY WAVE IS LOOKING LESS THREATENING: THE COMPANIES WITH THE RISKIEST REFINANCINGS HAVE ALREADY GONE INTO RECEIVERSHIP, NEGOTIATED AN EXTENSION, OR ARE PREPARING AN ARTICLE 9 SALE OF ASSETS TO CREDITORS
    • 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 we recently added Shwazze to the list. Cresco agreed 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 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 9/19/25 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 12 are in the top half of the Viridian-ranked universe of credits.
      • The black dots represent the multiples 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 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 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. The offered side quotes on Curaleaf, Verano, and Trulieve, the solid credit MSOS with the most remaining 2026 maturities, all tightened significantly since the Cresco deal. Investor psychology appears to have shifted, with a growing belief that these names will be able to refinance their maturities without undue hardship.
    • But market psychology can be fragile. 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. An adverse ruling on rescheduling could raise the threat level back to previous peaks.

• • HOW MUCH OF THOSE 280E SAVINGS WILL FIRMS ACTUALLY BE ABLE TO KEEP?
    • Every analysis we have seen regarding the impact on credit capacity, valuation, or growth from the elimination of 280E begins with a simple yet probably incorrect assumption: that the tax savings from eliminating 280E will flow directly to free cash flow.
    • This is clearly not the case, however. Some part of the savings, and possibly the majority of it, is likely to be passed through to consumers via lower prices.
    • One historical example that demonstrates this point is the 2022 California elimination of the cultivation tax. The $161 per pound tax equated to roughly 10-15% of the value when pounds were clearing at $1,000-$1,500 per pound. However, according to figures from MJBIZ, California production revenue dropped nearly 27% in 2022, more than offsetting the benefit from the excise tax. The hoped-for shot in the arm for California cultivators never happened.
    • The ability to retain tax savings varies significantly across markets. Operators in markets with many competitors and a vibrant illicit market are likely to keep very little of the savings. On the other hand, lower prices may allow a recapture of sales from the illegal market. The net impact can be approximated based on two variables: the number of competitors in the market and the price elasticity of demand.
    • The Cournot model is a simple economic model that describes competition when firms sell a relatively undifferentiated product. Each firm chooses the quantity it will produce, assuming rivals’ outputs are fixed, knowing that the market price will be whatever clears the market at the total amount produced. The strategic “best responses” to one another’s quantities define a Nash equilibrium: with few firms, each has market power (the price stays above the cost), and as the number of firms N increases, the outcome drifts toward perfect competition. In the symmetric, linear-demand case, it gives clean rules of thumb: firms will retain only 1/(N+1) of the tax savings, where N is the number of competitors in the market.
    • There is another side to the story, though. The other variable in our analysis, the price elasticity, determines the degree to which firms will recapture sales from the illicit market. If the elasticity is below 1, sales react weakly to a change in price, whereas if e > 1, sales react strongly to a price change. We have modeled e at 0.6, 0.9, and 1.2 to correspond with our assumptions of N = 5, 10, and 50. Each set of beliefs about N and e defines a type of market.
    • The chart below shows that in oligopolistic markets with low numbers of competitors and low price elasticity, the net impact will be that firms will retain around 22% of the tax savings. Around 17% of that comes from tax savings not passed through to consumers, while the other 5% comes from the extra FCF from incremental sales from the illegal market. The situation is reversed in markets with many competitors and high elasticity: only 2% of tax savings is retained, but incremental FCF equivalent to 12% of the tax savings comes from recaptured illegal sales.
    • The bottom line is that modeling based on reasonable assumptions suggests that, while S3 remains quite positive for the industry, the impacts are likely overstated.

• • SCHWAZZE PREPARES TO RUN THE AYR WELLNESS RESTRUCTURING PLAYBOOK.
    • As reported in Investing.com, Schwazze is finalizing a restructuring plan that is eerily similar to the one in progress for AYR Wellness:
      • Senior creditors will advance $65M in new funds to be used to repay $45M of seller financing and to fund $20M of new working capital
      • Senior creditors are selecting the best assets of the company, which will be subject to a credit bid from lenders under Article 9 of the UCC. These assets will form the core of Newco’s going-forward operations, which will be significantly deleveraged while shedding money-losing operations.  Operations not included in the credit bid may be repossessed by other lenders or allowed to sink or swim on their own.
      • Both the equity and preferred stock will be zeroed out in the process.
      • The Schwazze and AYR transactions are the new face of cannabis restructuring. Early restructuring deals, such as 4Front, Gold Flora, and StateHouse, were conducted through receiverships. These proceedings preserved the priority of claims, with senior secured creditors receiving the bulk of the proceeds and wiping out shareholders; however, by liquidating the companies’ assets in a piecemeal fashion, they generally did not maximize the value.
      • In AYR and Shwazze, creditors have upped their game by using Article 9 sales with credit bidding. These techniques allow senior creditors to strip out the operations they want to keep as a continuing business while ditching the bad parts of the company.
      • The new tools are a movement toward the use of “Liability Management Exercises,” sharp elbow techniques common in high-yield bonds, in which some creditors are able to improve their positions relative to other creditors.
      • Whereas we had previously calculated an asset coverage of total liabilities of around 55%, our analysis now indicates that Senior Creditors may receive recoveries exceeding 75%.
  • PLEASE DON’T SCHUMER US, PRESIDENT TRUMP
    • Trump finally came out with a public comment about cannabis rescheduling, causing cannabis stock prices and volumes to soar. But after a month, the enthusiasm has begun to wear off with lower prices and declining volumes.
    • Not everyone is positive about a potential move to S3, fearing that it would hand the industry over to the pharmaceutical companies or that it might result in heavy-handed FDA enforcement that would eviscerate the state legal recreational market. We do not see either of these happening, and a recent piece by Denton’s agrees with us.
    • The idea that Trump will push an agenda that wipes out state legal recreational markets through overly aggressive FDA regulation seems highly unlikely. Remember, we are discussing an industry that generates 400,000 jobs and billions of dollars in state tax revenue. Will Trump push to shut that down? We doubt it.
    • Also remember that the FDA, which people fear will crush rec cannabis, is the same timid and ineffectual agency that totally punted on a much less difficult issue, CBD. To think that a somehow invigorated FDA is going to rise and smite recreational cannabis is difficult to imagine. Is it even possible to stuff that genie back into the bottle? It would most certainly be an enormous boon to the cartels that Trump is hell-bent on eliminating.
    • What is true is that S3 is just the beginning and leaves a lot still to be done: It does not legalize cannabis and does nothing for bank reform, credit card usage, or uplisting. Still, S3 will increase the likelihood of additional reforms, such as SAFER or STATES, which will eventually produce those results.
    • We are not disappointed that descheduling is not on the table, as we view it as immensely destabilizing for the industry. We have learned that in Cannabis, you should always “be careful what you wish for.”
  • NEW YORK – WILL THE ONGOING COMEDY OF ERRORS TRIP UP NY’S RISE TO THE TOP FIVE?
    • Recently, we discussed the matter of the NY OCM miscalculating the distance from cannabis dispensaries to schools and houses of worship, thereby putting 105 licenses in peril.
    • Adding insult to injury, the state established a fund that would offer up to $250,000 to assist with relocation. Talk about disconnection from reality? $250,000 won’t even cover lease cancellation charges, and finding an alternative location may be nearly impossible.
    • Hopefully, Governor Hochul’s proposal to grandfather the licenses will succeed, but we learned long ago not to bet on the wisdom of NY politicians.
    • Adding to the mess is an August 12^th ruling from the Second Circuit in the case of Variscite NY Four LLC v New York State Cannabis Control Board, which held that under the Dormant Commerce Clause, New York’s licensing preferences tied to New York-specific marijuana convictions are discriminatory and cannot stand. So now license applications that were given preference on those grounds may come under challenge.
    • We projected in June that New York would climb to a top-five position in retail cannabis sales. Still, our analysis rested heavily on the continued rapid pace of dispensary rollouts. We still feel comfortable with our estimate of $1.6 billion in total retail sales for 2025; however, the possibility that these issues might slow the growth of licensed dispensaries makes us less comfortable with our $2.5 billion estimate for 2026. And cynically speaking, no one has ever gone wrong by underestimating the speed of the NY rollout.
  • MEASURES OF MSO 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 th
• 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 RECENT TRADING SHOWS RENEWED MARKET SKEPTICISM
  • Cooling optimism regarding rescheduling has lowered the aggregate EV/NTM for the top 11 MSOs to a level below that of August 25, 2023, the date the HHS announced its support for S3. Trump’s announcement that a decision on S3 would be forthcoming is the most significant news in cannaland for quite some time. But it’s been a month since he said a decision would be forthcoming in weeks, and cannaland has been Schumered too many times. Stock prices, as represented by the MSOS ETF, have actually fallen nearly 7% in the last month, increasing the already tremendous upside to be captured.
  • So, how much upside is left? 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 a 123% 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 DRIFTS LOWER AS S3 WAIT DRAGS ON
  • The average daily dollar volume of $18 million for the week ending September 19 is down from the 52-week peak of $68 million, but marginally higher than the $17M average volume since the election. The current Days to Trade the Market Cap (DTTMC) of 787 is slightly lower for the week but significantly higher than the trailing four-week average, implying lower liquidity. A DTTMC of 787 means 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 157 days to trade out of their position, lower than the 250-day average for the preceding 52 weeks but still unacceptably high for most institutional investors.

• GIVING CREDIT WHERE CREDIT IS DUE
  • The chart below displays our updated credit rankings for 25 U.S. cannabis companies as of September 19, 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. Credit rankings have remained virtually unchanged since last 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.