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Total U.S. Cultivation & Retail sector capital raises are down 65% YTD, and Equity financing is down nearly 97%, from $1.96B to $61M. Debt financing has become critical, accounting for 93.9% of the total capital raised in the sector YTD.
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With the lack of credit ratings in the sector, credit scoring models like the Viridian Credit Tracker Model have become increasingly important. The Viridian Credit Tracker model uses a combination of 11 financial statement and market variables to discern four critical aspects of cannabis credit: Liquidity, Leverage, Profitability, and Size.
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Our model uses a combination of four different variables to compute a leverage score, and the most highly weighted of these variables is Total Liabilities / Market Capitalization.
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We focus on Total Liabilities as our measure instead of total debt because we believe it is crucial to include lease liabilities and tax liabilities.
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:
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.
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
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The graph breaks total liabilities to market cap down to its components: Blue bars depict debt/ Market cap; orange bars show lease liabilities to market cap. The relative mix of debt vs. lease liabilities is interesting to consider. Some companies like Planet 13 (PLTH: CSE), Goodness Growth (GDNSF: OTC), and Lowell Farm (LOWL: CSE) have significantly less debt than leases, while others like Verano (VRNO: CSE), TerrAscend (TER: CSE) and Schwazze (SHWX: OTC) choose to have minimal lease financing relative to their debt. There are plusses and minuses to the different strategies. Cannabis debt usually has relatively short maturities of 2-3 years, which might be advantageous with the possibility of banking reform or other legalization initiiatives that could substantiall lower capital costs. Lease liabilities are generally long-term contracts that are difficult, if not impossible, to refinance.
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Tax liabilities make up a significant portion of the liabilities of several cannabis companies, an important consideration since they generally rank equal or senior to unsecured debt. The black line (measured on the right axis) shows tax liabilities as a percent of total liabilities, while the green bar depicts tax liabilities to market cap. Verano (VRNO: CSE)(subject to restatement), MariMed (MRMD: CSE), and Curaleaf (CURA: CSE) have the highest tax liabilities to total liabilities.
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If we could only compute one ratio by which to judge the credit quality of a cannabis company, it would be Total Liabilities to Market Cap. Investors should also be aware of the ramifications of the different types of liabilities in the capital structure.
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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)
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Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)
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Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)
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Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)
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Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)
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Credit Ratings (Leverage and Liquidity Ratios)
