Cannabis Chart Of The Week: How Does Liquidity And Market Cap. Impact Valuation Metrics?
This week’s Chart of the Week explores the relationship between market cap., liquidity, and valuation.
In the current capital-constrained environment, a logical hypothesis would be that valuation metrics should be higher for companies with more robust liquidity, as they have less apparent need for near-term capital raises. Similarly, the Valuation Gap graph in the Viridian Deal Tracker shows that larger cap companies consistently trade at high valuation multiples.
Viridian broke the twenty analyst-covered U.S. Cultivation and retail companies into those with less than $500M market cap on the left and those with more than $500M market cap on the right. We then further separated the companies in each size group into quartiles based on Viridian’s free cash flow adjusted current ratio, which modifies the standard current ratio to account for annualized free cash flow.
The blue bars (measured on the left axis) show median Enterprise Value/consensus 2024 EBITDA estimates. The yellow bars (measured on the right axis) show the median liquidity ratio.
As expected, the median EV/EBITDA ratio for the larger companies on the right was 8.86x, approximately 270 …