Cannabis Chart Of The Week: How Much Have MSO Valuation Multiples Changed In The Last Year And Why?

Most cannabis industry observers realize that valuations and valuations multiples for the major MSOs are up Y/O/Y, spurred by the promise of rescheduling.

The chart shows the Enterprise Value to Consensus Next twelve-month (NTM) EBITDA multiples of fourteen major MSOs from 4/14/23 (light green bar) to 4/12/24 (darker green bar).  

Valuation multiples are up for 11 of the 14 companies on the chart. Outliers include Jushi JUSHF, down 35.5%; TerrAscend TSNDF, down 5.2%; and Ascend AAWH, down 0.2%

The multiples of the other companies on the chart rose from 3% for Cresco CRLBF to 70% for Curaleaf CURLF. The group, in aggregate, had a 39% increase in EV/NTM EBITDA multiple from 6.13x to 8.53x. 

The lines on the Graph depict the two possible reasons for multiple changes. If a company’s EV/EBITDA multiple went up, it was either because its Enterprise Value went up, or its EBITDA went down, or some combination of the two. The maroon line shows the percent change in enterprise value, while the orange line shows the percent change in consensus NTM EBITDA estimates.

The group EV/EBITDA went up 39% because enterprise values rose 37.9% while EBITDA estimates fell by 0.9%. In other words, the market is simply valuing a static amount of EBITDA at a higher multiple. Nine of the fourteen companies have lower NTM EBITDA estimates.

Five companies on the chart have increased valuation multiple but lowered EBITDA estimates: AYR (AYR.A: CSE), Trulieve TCNNF, Shwazze, Curaleaf, and Vext VEXTF. Curaleaf is an example of pure multiple expansion despite a nearly flat EBITDA. Schwazze had a 58% multiple expansion caused by a 21% change in EV and a 24% decline in EBITDA estimates. Vext had a 70% multiple expansion, from an 8% decline in EV and a 46% decline in EBITDA.

Only two companies on the chart, GTI GTI and Cresco show both increased EBITDA multiples and EBITDA estimates.

We would expect rescheduling to produce multiple expansion since a larger portion of EBITDA will become free cash flow post 280e. However, investors should remember that EBITDA growth is fundamental to corporate health. Companies like Ascend and Cresco, with modest and relatively flat valuation multiples but increased EBITDA expectations, are worth closer investigation.

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.