Several market commentators have recently noted that the consensus analyst revenue estimates for the large MSOs have declined by low single-digit percentages since November.
We decided a longer time view was appropriate and that EBITDA was more critical than revenues. We looked at the nine largest market cap MSOs and investigated analysts' projected 2022 EBITDA and EBITDA margins a year ago, compared to their forecasted 2022 results today.
The graph shows the percentage revisions in EBITDA (green bars) and EBITDA margins (orange dot). The blue line shows the performance of each company's stock relative to the performance of the MSOS ETF (blue line).
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Analysts have made sharp reductions in their EBITDA estimates for Curaleaf (CSE:CURA) and TerrAscend (CSE:TER) and moderate decreases for AYR (CSE:AYR), Cresco (CSE:CL), and Jushi (CSE:JUSHF). Estimates for Columbia Care (CSE:CCHW) and GTI (CSE:GTII) are virtually unchanged, and Verano and Trulieve estimates are higher.
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M&A activity had a significant impact on some of these revisions. Trulieve and Verano completed $1.5B and $630M, respectively, in acquisitions over the period. But even some major acquirers had their EBITDA revised downward sharply. For example, AYR completed $1.0B in acquisitions, and analysts have revised their 2022 EBITDA projections downward by 8%.
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The missing link is margins (shown by the orange dot. All the companies on the list, except for Curaleaf and TerrAscend, have higher 2022 revenue projections than they did a year ago. Still, every company except Verano (data not available) has lower EBITDA margin estimates for 2022 than they did a year ago. These lower margins more than offset higher projected revenues.
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What happened to margin expectations? Our guess is that the sell-side equity analysts were just a bit too optimistic and have been forced to rein in their expectations.
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Interestingly, the blue line shows that earnings revisions have had little impact on relative performance. Curaleaf, with the most significant downward revisions, actually outperformed Trulieve with the most significant upward revisions.
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.
Launched in January 2015, and having analyzed more than $60B in deals, the Viridian Cannabis Deal Tracker is a proprietary data service that monitors and analyzes capital raise and M&A activity in the legal cannabis and CBD industries. Each week the Deal Tracker provides proprietary data and market intelligence on transactions, including:
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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)
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Principals to the Transaction (Issuer/Investor/Lender/Acquirer)
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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)
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.
