Cannabis Chart Of The Week: Which Margins Should Investors Focus On?
Viridian’s Chart of the Week focuses on the strengths and weaknesses of different margins as a measure of profitability and credit quality.
The green line in the graph shows consensus estimates of 2025 net margins; the red line shows 2025 cash flow from operations margins, while the blue line shows consensus estimates of 2025 EBITDA Margins. The chart is arranged to show companies with the highest projected Cash Flow margins on the left.
Note that in every case, the net margin is lower than the cash flow from operations margin, which, in turn, is lower than the EBITDA margin. Why are these measures so different, and which should be paid most attention to? The obvious, although frustrating, answer is that it depends on the use.
Net margins are rarely discussed in cannabis, and a quick look at the graph shows why. Nine of the seventeen companies have negative net income estimates for 2025. The chief culprit is, of course, 280e taxes, and several of these companies are also overleveraged with relatively expensive debt dragging down net income. The main advantage is the matching principle of accounting. When a company buys inventory, it is not counted as an expense since it has not yet sold the product. Similarly fixed assets are expensed over time in keeping with their useful life. One significant disadvantage of Net income, …