Cannabis Chart Of The Week: Which Leverage Metric Should Investors Keep A Close Eye On?
The cannabis credit markets have come back to life with several major refinancings, including Ascend (OTC: AAWH), TerrAscend (OTC: TSNDF), and Jushi (OTC: JUSHF). The market has become more sophisticated with a tremendous spread of yields required based on perceived credit quality, ranging from well under 10% for Green Thumb (OTC: GTBIF) to over 25% for Cannabist (OTC: CBSTF).
The graph shows two leverage metrics: Total Liabilities to Market Cap (green bar) and Total Debt/ 2024 EBITDA (orange bar). The purple squares show offered side trading yields for the debt of each company.
The graph clearly shows that trading yields are much better correlated with total liabilities to market cap than with Debt/ EBITDA, and the former is an excellent early warning sign of credit difficulties.
Viridian uses Total Liabilities to Market Cap as the most important of our four leverage ratios for several reasons:
The metric can be calculated for all public companies, not just the minority of them with sell-side analyst coverage.
The measure is responsive to all information driving equity prices on a daily basis, as opposed to Debt/ EBITDA, which generally …