Chart Of The Week: Improved Leverage And Valuation Metrics For Cannabis MSOs
What’s the right way to measure Cannabis company leverage?
The standard answer is Debt/EBITDA; however, Viridian believes the single best valuation measure is Total Liabilities / Market Cap, which reflects the market’s estimation of the asset value above liabilities. It is immune to accounting manipulations and reacts instantly to news that changes investors’ views of company value.
Some investors, however, are more comfortable with an accounting-based measure, and Viridian also makes use of these ratios in the Viridian Capital Credit Tracker model. We are in the process of incorporating a new measure into the model utilizing several core principles:
Leases make up a large portion of the capital of many cannabis companies and should be treated as debt. Lease liabilities make up 82% of combined debt and leases at Planet 13 (OTC: PLNH), 63% at 4Front (OTC: FFNTF), 47% at Green Thumb (OTC: GTII) and Ascend (OTC: AAWH), and 46% at Curaleaf (OTC: CURLF). They represent long-term fixed obligations, often on “mission critical” facilities, and they frequently contain cross-default clauses to other obligations. Defaulting on a lease cannot technically trigger bankruptcy, but there are no bankruptcy …