Viridian Key Insights

        VIRIDIAN INSIGHTS

• • THE WASHINGTON POST STORY INDICATING TRUMP STRONG CONSIDERATION AND IMMINENT ANNOUNCEMENT OF S3 WAS THE MOST IMPACTFUL NEWS OF THE LAST FEW YEARS
    • The MSOS ETF posted its largest percentage gain since its launch in September 2020.
    • Prices are up further this week, showing that the market believes this is the real deal.
    • The fact that Trump is planning to do this via executive action is meaningful since the risk of the DEA dragging its feet is substantially reduced.
    • The exact mechanism and terms of the rescheduling are not yet known.
    • Our Chart of the Week, which looked at the impact that a return to 15x EV/2026 EBITDA would have on the biggest MSOs, shows that most still have significant price appreciation potential, despite the large run-up.
    • The two charts below show last week’s rally in the context of previous legislative/regulatory reform announcements
• 
• 
  • SUPREME COURT DECLINES TO HEAR CANNA PROVISIONS CASE
    • On December 15, 2025, the U.S. Supreme Court declined to hear the case of CANNA PROVISION, INC. ET AL VS BIONDI. We carried a full analysis of the potential impacts of the case in last week’s Tracker, which is now moot.
    • The Court hearing the case was always an outside chance, but one that, if the plaintiffs fully prevailed, would have essentially descheduled cannabis for interstate commerce.
    • Trump’s announcement that he is strongly looking at rescheduling to S3 was perfectly timed to reduce the chances of the Court hearing the case, since it would be acting ahead of the likely upcoming federal reform.
    • Cannabis stocks barely reacted, as no positive results were baked into prices.
  • UPDATED THOUGHTS ON THE CURELEAF BID TO ACQUIRE CANNABIST’S REMAINING VIRGINIA PROPERTIES
    • Recapping: On December 2, 2025, Cannabist Corporation (CBST: Cboe)(CBSTF: OTCQB)  announced the sale of its remaining Virginia assets in the Richmond region for gross proceeds of $110M, including $80M of cash at closing, $20M in deferred cash, and a $10M 6% note.
    • We talked to a number of credible sources at MjBiz and learned some interesting details:
      • Most estimate the “four walls” EBITDA of the operations at between $20M and $25M
      • Some said that the cultivation/production facility may need up to $10M in capex to reach full production standards.
    • So if we take the $80M cash, discount the $20 deferred cash for 1 year at 12%, haircut the note by 50% (6% coupon), and then add in the extra $10M, we get a total price of approximately $ 113 M. This implies valuation multiples of 4.5x – 5.6x. That seems in line with the 5.52x median multiple of 2025 EBITDA for the 8 MSOs with over $75M market cap. Still, it doesn’t really factor in much added value for the fact that  Virginia revenues are likely to accelerate meaningfully if the state actually implements adult rec. 
    • So does the deal get topped? When the deal was announced, our first impression was NO WAY, but now we think it’s not such a crazy thought.
    • But the list of companies with the wherewithal to top Curaleaf’s bid is quite limited. One possibility is Cresco. Remember, Cresco was under contract to buy Columbia Care and likely had the opportunity to conduct detailed due diligence on these assets. Cresco is also underweight in the Mid-Atlantic region, and we believe it has the financial capacity to make the purchase.
    • Our second-most-likely candidate would be Vireo. Clearly, acquisitive and backed by Chicago Atlantic, Vireo is capable of pulling off this deal. What doesn’t line up for us is the idea that Vireo would be such a big cash buyer. That doesn’t align with how they have built the company.
    • Our third choice is Verano. Verano has already purchased the Eastern VA HSA from Cannabist, and having two HSAs would give them strategic leverage in a future adult rec market. But buying an asset at these multiples, which are significantly higher than where Verano trades, is out of character and seems doubtful. Verano, like Curaleaf, still needs to complete a refinancing of its 2026 maturities, but also has additional availability through its new Needham Bank revolver.
    • Another interesting analysis is: where does this leave Cannabist? FactSet shows a single analyst estimate of $19M for Cannabist 2025 EBITDA, and against that, we hear estimates of around $20M for the Virginia operations being sold. Does that mean that the rest of the company is breakeven to slightly negative?
    • That would be a surprising result given that the company has operations in New York, New Jersey, Ohio, and Pennsylvania. But perhaps locations like Massachusetts, California, and Colorado offset the gains in these stronger states?
  • ANALYSTS ARE QUITE UPBEAT ABOUT 2026
    • The Chart below shows historical and consensus revenue and EBITDA margin estimates for the top 10 MSOs for 2022 through 2027. Note that after a projected 4.2% decline in revenues in 2025, analysts are projecting a 3.8% increase in 2026. Aggregate margins are also projected to strengthen slightly, resulting in 4.7% EBITDA growth, a significant improvement from the 9.1% decline projected for 2025. So the bottom line is that companies are adapting to the environment and figuring out how to improve their operating profitability despite the headwinds we face.
    • It is unclear which new adult rec states are included in analyst projections. Still, it appears to us that very little of the impact of PA, VA, or FL is included, and together, any one or combination of these could provide significant further upside.
• 
  • 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, AYR, and Shwazze flamed out. Meanwhile, Cresco agreed to refinance its secured term loan, and Trulieve has announced it is calling its 2026 debt at the end of 2025. Putting the $1.53B figure into perspective, it is 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 12/12/25 market-implied asset coverage of total liabilities. We arrive at this by viewing the equity as a call option on the firm’s asset value, with a strike price equal to its liabilities, and assuming a maturity of 2026, 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 the current asset value. By iterating on the BS model, we can determine the market’s assumption about 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 for the 2026 debt maturities. Clearly, the larger the debt maturities relative to the market cap, the more difficult refinancing would be.
      • The companies to the right of Jushi (JUSHF: OTCQX) on this graph represent higher risk. They have less than 1x asset coverage, generally poor Viridian Credit Ranks, and several, such as IAnthus and Body & Mind, have maturing debt that is multiples 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—tightened significantly after the Cresco deal. Investor psychology appears to have shifted, with a growing belief that these names can refinance their maturities without undue hardship.
• 
  • 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 of the savings, and possibly the majority, are likely to be passed through to consumers via lower prices.
    • One historical example that demonstrates this point is the 2022 elimination of the cultivation tax in California. 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 excise tax benefit. 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 price change, 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 market type.
    • The Chart below shows that in oligopolistic markets with few competitors and low price elasticity, 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.
• 

• • 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 before EBITDA is calculated.
    • 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, nine 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.

• • • 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 reflects the market’s assessment of a company’s assets in excess of its liabilities and 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 9x and total liabilities to market cap of under 2x. The group includes GTI, Vireo, Trulieve, Verano, Cresco, TerrAscent, 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, Ascend, and Jushi. Jushi is interesting because its liabilities include nearly equal amounts of 2026 debt maturities and uncertain tax liabilities.
      • On the right lies Cannabist (off the Chart to the right) with well over 10x, a range that indicates distress. Ascend appears to be looking much better than it did three weeks ago, thanks to its stock rally.

• • • 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. Companies in the lower right generally have constrained liquidity and high leverage, a potentially dangerous combination in a capital-constrained environment.

• • VOLUME SETS RECORD LEVELS ON WASHINGTON POST STORY
    • The average daily dollar volume of $59 million for the week ending December 12, 2025, was explosively higher, and hides the fact that Friday’s volume was about $240M, the highest ever recorded since we began tracking the data. The current Days to Trade the Market Cap (DTTMC) of 243 is significantly better than last week’s 880. A DTTMC of 243 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 49 days to trade out of their position. If volume were consistently that high, we would begin to see more efficient price discovery.

• • GIVING CREDIT WHERE CREDIT IS DUE

• • • The Chart below displays our updated credit rankings for 25 U.S. cannabis companies as of December 12, We have reduced our ranking set from 30 to 24 companies by eliminating AYR, CLS, FFNT, GRAM, SHWZ, and Tilt. 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.
    • The blue squares show the offered-side trading yields for each Company.
    • We find it curious that Cresco, TerrAscend, and Ascend are all trading within 25 basis points of each other. All three have refinanced their 2026 maturities, but we rank Cresco four notches better than Ascend and five notches better than TerrAscend.