Cannabis Credit Tracker: The Market Is Pricing Debt Efficiently

The Viridian Cannabis Credit Tracker uses 11 financial and market variables to rank each company on four factors that we believe are good indicators of credit quality: Liquidity, Leverage, Profitability, and Size. The model synthesizes these variables into an overall credit score.

Debt has become a more significant percentage of capital raised during 2021 for several reasons:

• • The effective cost of debt has come down significantly, and more companies can now access non-dilutive debt.

  • Cannabis equities are approximately 45% down from their February highs, and dilution is now a concern.

  • Better funded, public institutional lenders have been aggressively funding the sector.

• The major rating agencies appear to be waiting for legalization to issue credit ratings, and even secondary raters like Egan-Jones have confined their ratings to non-plant-touching companies.

• The graph shows the effective costs of the most recent large MSO debt issues versus the current credit score calculated by the Viridian Credit Tracker.  

  • The orange line represents each companies’ effective cost from their most recent debt issue, and the green bars represent the credit score calculated from the Viridian Credit Tracker.

  • The graph is arranged from the lowest credit score (highest credit quality) to the highest credit score (lowest credit quality).

• Interestingly, Cresco CLCRLBF and Ascend AAWHAAWH were both forced to pay higher effective costs than Columbia CCHWCCHWF, even though our model ranks them better. Cresco and Ascend were both large deals ($200M & $210M, respectively) priced in August after the cannabis equity market had declined 12.5% and 18.2% since the Columbia Care deal was priced.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis and hemp industry. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Industry Sector (one of 12 sectors, from Cultivation to Brands)

• Dollar value of the transaction

• Region in which the deal occurred (country or U.S. state)

• Status of the company announcing the transaction (Public vs. Private)

• Deal structure (equity vs. debt)

• Key deal terms (Pricing and Valuation)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

Photo by Javier Hasse.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.