Cannabis Valuation Jumps Post-Rescheduling Recommendation, Viridian Report Reveals

In a potentially game-changing decision, the Department of Health and Human Services (HHS) recently recommended the DEA to consider reclassifying cannabis from its Schedule I status — a classification that denotes no medical value, on par with substances like heroin — to Schedule III.

Related Content: Cannabis Stocks Soar As Gov Health Officials Call On DEA To Reschedule Marijuana: Is Legalization In Sight?

This historic recommendation sent ripples through the market, as depicted in a recent report by Viridian Capital Advisors.

Insights From Viridian Report

• Viridian’s in-depth analysis targeted 14 major U.S. cannabis cultivation and retail companies, each with a market capitalization surpassing $50 million.
• The report highlighted the rapid change in valuation, noting a surge in the median EV/2023 EBITDA multiple for these companies from 5.69x to 7.9x in just one week following the HHS’s recommendation.
• Such swift changes are unprecedented, with Viridian predicting the EBITDA multiple could approach 10x even if formal rescheduling doesn’t occur. "The median market to book is now 1.3x compared to 0.8x in the previous week. These are the most extensive one-week changes since we began the Value Tracker three years ago. Based on our earlier DCF modeling, we believe the EBITDA multiple should be around 10x, even without the rescheduling and with the potential to go higher," per the report.

Beyond Cannabis: However, the implications of the HHS's move aren't limited to the cannabis industry. The intertwined relationship between cannabis and agricultural technology has also been spotlighted. Following the reclassification news, the Green Market Report reported that the market-to-book ratios for 19 top agricultural technology companies skyrocketed from 44x to an impressive 61x.

One pivotal element at the heart of this connection is the controversial regulation 280E.

While it doesn’t directly influence the tech sector, it heavily affects their main customers: multistate cannabis operators. A more accommodating cannabis regulatory environment could lead to a flood of investments from these operators due to improved cash flow and easier access to the cannabis capital market.

Related Content: Why 280e Change Spells Good News For Cannabis Cash Flow: Jason Wild Weighs In

Real-World Impact: As an illustration of the tangible effects of the existing regulations, Kim Rivers, CEO of Trulieve Cannabis Corp TCNNF, revealed the company’s substantial financial outlay, spending over $220 million in taxes related to 280E in just two years. 

• Rivers is slated to offer her valuable perspectives as a keynote speaker at the Benzinga Conference in Chicago. Mark your calendar for September 27-28.

For a deeper understanding of the ongoing changes within the sector, the upcoming Benzinga Cannabis Capital Conference in Chicago is the place to be. All information is available on bzcannabis.com

Image by El Planteo