Cannabis Chart Of The Week: Who Has Gained The Most From Rescheduling Talk?

The potential impacts of rescheduling have dominated cannabis discourse over the last four weeks. MSOs and other plant-touching companies have had their greatest percentage gains in two years despite a meaningful correction last week.

The Charts delve into the trailing 4-week percentage gains in market capitalization experience by the groups shown. The analysis is based on the Viridian Value Tracker database of 324 companies broken into 12 subsectors of the cannabis industry. Cultivation and Retail companies have clearly experienced the greatest gains of 46% across all countries.  U.S. gains have been higher at 59%, while Canadian sector companies are only up an aggregate of 24%.

The hemp sector is up approximately 26% on speculation of potential positive changes to the farm bill, which is scheduled to expire on September 30, 2023.

Biotech/Pharma and Psychedelic sectors have registered declines of 6% and 1%, respectively, as investment flowed back into cultivation and retail stocks. Real estate sector companies, which include large lenders and sale-leaseback providers, are up 6% due to the potentially positive credit quality impact of rescheduling on their borrowers.

The bottom graph separates the 94 cultivation and retail sector companies into groups based on Total Liabilities to Market Cap at the beginning of the 4-week period (8/25/23).  This ratio is the most highly weighted leverage indicator in the Viridian Credit Tracker credit ranking model.

The green bars depict percentage increases in market cap and clearly show that companies with higher market leverage have experienced larger percentage gains than their less leveraged competitors. This makes sense for two reasons: 1) higher-levered companies stand to gain more from a re-opening of the cannabis capital markets and 2) Lower tax payments will give larger and more financially robust MSOs more capital to deploy in M&A, thereby increasing the likelihood of an M&A takeout.

The orange line (measured on the right axis) shows the percentage of total sector market cap represented by companies in each leverage bucket. Note that approximately 86% of the total sector market cap is represented in the two middle leverage groups, which have a weighted gain of 44%.

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.