Cannabis Chart of the Week: How Aggressive Are 2nd Quarter EBITDA Margin Estimates?

The chart shows analyst estimates of EBITDA margins for the second quarter vs. the first quarter and the 2nd quarter of 2022 for the fourteen largest MSOs for which we have consistent analyst projections.

The blue bars show Q1 23 EBITDA margins; the red bars show Q2: 23 projected EBITDA margins, and the green bars show) Q2: 22 EBITDA Margins.

We expect 2nd quarter margins (red) to be higher than 1st quarter margins (blue), which is the case for nine of the fourteen companies on the chart. Outliers include Planet 13 PLNHF, reflecting continuing pressures in Nevada and the relative lack of seasonality between Q1 and Q2 in the market. Ascend AAWH also had production issues in New Jersey, causing them to lose a significant percentage of their crop. Trulieve TCNNF is projected to have lower Q2 margins as they discount old product in Florida and clear out product to exit Massachusetts. The company also appears to be losing market share in Florida. Green Thumb GTBIF is getting more aggressive in working capital management by discounting inventory. Finally, Schwazze SHWZ is projected to have a lower 2nd quarter margin as Colorado and New Mexico pricing continues under pressure.

We also expect that most companies will have lower Q2 23 EBITDA margins than Q2 22 based on commodification-based wholesale pricing pressures and inflation-driven cost increases. Ten of the fourteen companies on the chart follow this pattern. Outliers include Jushi JUSHF, whose Q2 22 EBITDA of $0.5M missed estimates by 86%. EBITDA has beat expectations for the last two quarters, but Q2 23 estimates may still prove aggressive. Columbia Care CCHWF has been ratcheting down costs in case the CL deal doesn’t happen. Terrascend TRSSF has dramatically improved its situation by scaling up in New Jersey and rationalizing its Michigan operations. Finally, AYR AYRWF has higher expectations based on new management, scaling in New Jersey, leaving Arizona, and gaining share in Florida.

Analyst estimates for Q2 23 seem mainly in line with our expectations. We will keep a close eye on the abovementioned outliers and, as always, pay close attention to full-year 2023 and 2024 revenue and EBITDA revisions. As previously discussed, we believe 2nd half 23 margin projections may still be a tad optimistic.

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.