Cannabis Chart Of The Week: Are You Worth More Than Your Cash? Cash-To-Market Cap Ratios Among Weed Companies

• The graph depicts the ratio of cash to market cap for the U.S. and Canadian Cultivation & Retail companies with more than $200M of market cap.

• Note that five companies have more than 30% cash to market cap, all Canadian LPs.

• Cronos CRON has 80% of its market cap in cash; the market is only ascribing $258M to its business operations. The valuation is arguably generous for a company that has burned through more than $800M of cash since the $1.8B investment by Altria in March 2019. The company has had nine consecutive quarters of negative gross profits and had a negative $133M adjusted EBITDA for the nine months ended 9/30/21. At that cash burn rate, many shareholders probably wish they could just take the $1B on the balance sheet and call it a day.

• HEXO HEXO is another company with most of its market cap in cash. HOWEVER, unlike CRON, HEXO has liquidity problems due to the $277M of secured convertible notes still outstanding from the Redecan acquisition. HEXO has reinstated its ATM equity issuance program and may be able to issue sufficient equity to fund these obligations but then again, maybe not. Nasdaq has notified the company that they don’t meet listing requirements because they are trading below $1. HEXO has approached shareholders with a reverse split proposal to fix the issue, but frankly, there are more pressing needs than maintaining a Nasdaq listing.

• Other companies with more than 30% of their market cap in cash include Sundial SNDL, Canopy Growth CGC, and Aurora ACB, each boasting significant negative EBITDA and unfocused business strategy. 

• Interestingly, three US MSOs have cash of over 20% of their market cap: Ascend AAWH, AYR AYR, and Planet 13 PLTH. Unlike the companies above, we think they are well managed and trading well below their intrinsic value. Much of their cash positions have been earmarked for accretive acquisitions and capex over the next year.

• As one might expect, all of the tier one MSOs have a cash-to-market cap under 10%. The market is valuing their business, not their cash.

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.