The tightening of cannabis capital markets has accentuated the role of credit analysis and ratings for two critical reasons: 1) Equity financing has become more challenging to obtain, and 2) tightening credit standards could cause debt to become more expensive or unavailable for weaker credits.
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Credit ratings are not currently available for U.S. cannabis companies and the Viridian Credit Tracker Scoring Model fills this gap. The model uses 11 market and financial statement variables to discern 4 key credit factors: Liquidity, Leverage, Profitability, and Size. The graph shows each company’s score on Liquidity & Leverage as well as its overall Credit Score.
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The Chart shows the Viridian Credit Scores of the ten worst and ten best companies with stock prices over $.10 and market caps between $10M and $300M. We have eliminated financial, biotech, and psychedelics companies from the sample due to their significantly different credit drivers. The ten worst scoring companies are on the left, while the ten best are on the right.
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Within the worst scoring group, we note that Harborside (HBOR: CSE) is poised to make significant progress based on the rationalization of California cannabis regulation that appears to be in progress. Body & Mind (BAMM: CSE) is also significantly levered to improvements in California, despite carrying high market leverage and low liquidity.
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Within the best scoring companies: We are bullish on Schwazze (SHWZ: CSE) as a relatively low-risk Colorado consolidation play. MariMed (MRMD: CSE) is an excellent example of how fast fortunes can change in cannabis. If we had done this exercise a year ago, MRMD might have been on the opposite side of the Chart. The company has made significant progress rationalizing its capital structure and making solid operating improvements.
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The companies' low liquidity and high leverage on the left side of the graph suggest the need for additional capital raises, asset sales, or M&A transactions. In the tumultuous macroeconomic environment, shoring up liquidity might be a prudent though expensive undertaking.
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:
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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)
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.
Photo by Javier Hasse.
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
