Investment Attractiveness – Low Multiples Or Better Credit Quality?

The graph reviews the attractiveness of the top 14 MSO stocks for which analyst estimates are available for 2023 EBITDA.

In ranking stocks, investors need to balance low multiples with relative safety. Stocks that trade at attractive multiples sometimes do so because they present higher credit risk. 

The orange line on the graph shows each company's Viridian Capital Advisors credit ranking from 1 to 14 (measured on the right axis), with higher numbers indicating better credit quality according to the Viridian Capital Advisors Credit Tracker Model. For example, Green Thumb CSE ranks 14, indicating that our model ranks it as the best credit in the group.

The blue line ranks the company's EV/ Consensus 2023 EBITDA from 1-14 (measured on the right axis), with higher numbers indicating lower (more attractive) valuation multiples. Green Thumb has a rank of 4, suggesting that it is the 4th highest valuation multiple out of the 14.

The Green bar (measured on the left axis) is the product of the EV/2023 EBITDA rank and the Viridian Credit Score rank. Companies that have both low EV/ EBITDA multiples and high Viridian Credit Tracker Credit ranks will have higher attractiveness ranks.

According to our analysis, the most attractive two investments are Verano VRNOF and Trulieve TCNNF. Both have reasonable valuation multiples and credit relatively high credit ranks.

Curaleaf CURLF, on the other hand, shows up as relatively unattractive because although it ranks as one of the best credit quality companies, it has the highest valuation multiple of the group.

In the current constrained capital markets, equity investors must pay careful attention to valuation multiples and credit quality. Although the probable passage of the SAFE+ bill is likely to raise the valuations of the entire group, it is wise to consider a continuation of current market conditions.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)

• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)

• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)

• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)

• Credit Ratings (Leverage and Liquidity Ratios)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.