Cannabis Sales Leaseback Providers And Lenders: A Comparative Study Of Market/Book Ratios And Risk Indicators

The graph shows the market/book ratios for cannabis sales leaseback providers and lenders, along with two indicators of risk: market leverage and borrower concentration.

• The green bars show market/book ratios for each company. The orange line shows the market cap minus cash divided by enterprise value. NewLake Capital NLCP and Silver Spike Inv. SSIC have virtually no debt, while PowerReit (PW: Nasdaq) has an equity market value of only 15% of enterprise value. The brown line shows the total concentration of the top 5 tenants or borrowers.

• The companies trade at a wide range of market/book ratios. PW is the outlier at .2x book value, which seems high considering that of its 19 cannabis greenhouses, 11 are vacant, 14 are non-current or in default, and impairments have been taken on all 19.

• The comparison between NLCP and IIPR is more interesting. IIPR is the only company on the graph trading above book value. NLCP is significantly less levered; however, 74% of its 2022 rental revenue was attributable to its top 5 tenants vs. only 47% for IIPR. IIPR has three properties representing 6.3% of 2022 revenues in default vs. one property representing 10.6% of revenues for NLCP. IIPR, however, also had to take possession of 3 properties from Kings Garden, including one it is trying to re-lease for non-cannabis use. IIPR has an average of $267 per square ft invested in its properties, slightly higher than the $258 for NLCP. Both values concern us because we believe non-cannabis uses would garner significantly lower valuations. We conclude that the gap is too large, IIPR should not be trading above book value given the risks it faces, and NLCP deserves a somewhat higher valuation.

• In the lender group, REFI trades at .91x book, well above the .71x of AFC Gamma AFCG. REFI's valuation appears full, but the premium to AFCG seems justified by REFI's significantly lower leverage, lower borrower concentration, and the fact that REFI has only 1.2% of Current Expected Credit Loss (CECL) compared to 5.0% for AFCG. Silver Spike trades at the lender group's lowest multiple of book value. This discount is probably attributable to its high borrower concentration, with two relatively low-yielding loans making up 80% of the portfolio.

• The companies on this chart have been vital suppliers of debt capital to a cannabis market where equity investment has all but dried up. Given the challenging environment for their borrowers, however, it seems inevitable that the group will take more hits in 2023.

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, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)

• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)

• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)

• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)

• Credit Ratings (Leverage and Liquidity Ratios)

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.

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