Cannabis Chart Of The Week: What Should MSO EBITDA Multiples Be?
Viridian created a discounted cash flow model (“DCF”) to calculate a range of theoretically supportable EV/EBITDA multiples, given analysts’ expectations for 2024-2025 and reasonable assumptions for the seven years after that.
We based our model on a hypothetical $1 of EBITDA and generated a DCF valuation of that $1 to produce an EBITDA multiple.
Assumptions:
Revenue growth rates for 2024-2025 are consensus analyst estimates for the twelve largest MSOs.
EBITDA Margins 2024-2025 are consensus analyst estimates. 2025 & 2026 margins are held constant at 28%, and afterward, margins advance or decline towards an assumed terminal margin, sensitized in the table. We believe it is appropriate to forecast decreasing EBITDA margins for post-legalization.
Tax rates on EBITDA are assumed to be 50% for 2024. Then they are assumed to decline to 8% from 2025 onward based on combined federal and state tax rates of 27% on a company with assumed EBITDA margins of 28%, 3x Debt/EBITDA, and average depreciation/sales for the group of .1x sales.
Required Reinvestment is driven by an assumed Sales/Capital ratio of 1.0x. This ratio is better than the .6x we measured in our recent study of capital intensity in the industry. We …