Cannabis Stocks With Hidden Potential: A Closer Look At Attractively-Valued Tier-2 Firms

In a comprehensive report by Viridian Capital Advisors, the spotlight is on the valuations of companies within the U.S. cultivation and retail sector, specifically those boasting market caps ranging from $100 million to $500 million —commonly referred to as ‘Tier 2’ enterprises.

This strategic analysis has been instigated by recent market dynamics, notably the private equity placement undertaken by industry player Planet 13 Holdings Inc. PLNHF. It's noteworthy that the present group consists of eight companies, showcasing a reduction from the ten with similar characteristics observed last year.

See Also: Las Vegas-Based Planet 13 Expands Retail Portfolio Into Illinois With Waukegan Dispensary

Despite a 5-week market rally and evolving prospects, valuations persistently linger below the previous year's figures. The median market to book for the group now stands at .99x, a significant drop from the 1.90x reported last year. Likewise, the median EV/annualized revenue has descended to 1.16x from the prior 1.98x, and the median EV/EBITDA for the current year records a substantial dip from 9.85x to 5.46x.

See Also: EBITDA Growth And Multi-State Opportunities In Key States Going Legal: Zuanic & Associates' Insights

These figures present a stark contrast, especially considering the enhanced industry landscape. Companies have tactically implemented measures such as cost-cutting, streamlined working capital management, prudent reduction of unnecessary capital expenditures, strategic exits from unprofitable states, and an overall bolstering of operational efficiency. According to reliable Benzinga sources, “On a regulatory front, the SAFER Act is similarly mired in an endless Congressional loop. Still, the much more critical rescheduling is on track for 2024 with far-ranging cash flow implications.”

As the market continues to evolve, Tier-2 MSOs are demonstrating noteworthy resilience and success. Notably, TerrAscend Corp TRSSF, Glass House Brands Inc GLASF, and Ayr Wellness Inc. AYRWF have spearheaded this positive trend, leading the sector with an impressive 4% year-to-date increase.

The valuation multiples for this Tier 2 group underscore the substantial upside potential embedded in the current market landscape.

Click here to access the full list of Viridian Credit Rankings for public multi-state operators (MSOs).

Launched in 2014, Viridian Capital Advisors stands at the forefront of corporate finance, advisory, and M&A practices within the legal cannabis/CBD industries, extending its influence into the emerging psychedelics sector.

Read Next: MSO Financial Health: Debt Restructuring Vs. Equity Raises – Analyst Digs Into Spreadsheets

Image by Markus Spiske On Unsplash