Viridian created a discounted cash flow model ("DCF") to calculate a range of theoretically supportable EV/EBITDA multiples, given analysts' expectations for 2024-2025 and reasonable assumptions for the seven years after that.
We based our model on a hypothetical $1 of EBITDA and generated a DCF valuation of that $1 to produce an EBITDA multiple.
Assumptions:
The resulting EBITDA multiples are shown in the Sensitivity Analysis Chart. Multiples range from 11.2x to 16.75x; however, we believe the most likely range to be between 13.25x and 15.8x. The group is currently valued at 7.8x consensus NTM EBITDA.
The result confirms that the MSOs are cheap relative to their conservatively estimated intrinsic values; however, the ingrained investor skepticism regarding all cannabis regulatory developments and the absence of new capital in the market have delayed the upside move we still expect to develop.
Other catalysts, like positive state actions in Florida and potentially Pennsylvania, a new Garland memo, the resurrection of the SAFER act, or encouraging developments in the Boies lawsuit, could meaningfully accelerate these gains. We believe a doubling of prices is a reasonable expectation as these catalysts unfold.
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.
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.
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