Cannabis Chart Of The Week: Is Financial Strength Related To YTD Stock Performance?

The Viridian Chart of the Week explores the relationship between financial strength and YTD stock performance.  

We broke the 30 MSO/SSOs that Viridian ranks each week into five different groups arranged with the strongest six companies on the left (Group 1) and the weakest six companies on the right (Group 5).

• Group 1: Green Thumb GTBIF, Trulieve TCNNF, Grown Rogue GRUSF, Verano VRNOF, Cresco CRLBF and Planet 13 PLNH

• Group 2: Curaleaf CURLF, Cansortium CNTMF (proforma), C21 CXXIF, MariMed MRMD, Vext VEXTF, and Ascend AAWH

• Group 3: AYR AYRWF, TerrAscend TSNDF, 1933 Industries TGIFF, Glass House GLASF, Leef Brands LEEEF, and Goodness Growth GDNSF

• Group 4: Jushi JUSHF, Shwazze, Cannabist CBSTF, Ianthus ITHUF, Acreage ACRDF, and 4Front FFNTF

• Group 5: Tilt TLLTF, Gold Flora GRAM, Red White & Bloom RWBYF, Slang SLGWF, Body & Mind BMMJ, and StateHouse STHZF

• Group 1 is up 14% YTD, driven by an 81% gain by Trulieve and a 142% gain by Grown Rogue. Viridian correctly expected that the financially most robust companies would outperform in the current environment for several reasons:

  • The capital markets have shown little sign of opening up, and what capital is available is expensive.

  • The market has priced in very little of the theoretical value of rescheduling. 

  • In this environment, having the ability to buy back stock is a great advantage. Companies in Group 1, including GTI and Verano, have announced buybacks, and we would not be surprised to see Trulieve join the club. Buybacks do not preclude the issuance of new stock at higher prices.

  • Expansion opportunities in Ohio, Pennsylvania, and Florida require capital, and the strongest companies are best positioned to make inroads.

• Group 2 performance was dragged down by YTD losses of 30% by MariMed and 33% by Vext, somewhat offset by a 63% gain by Cansortium.

• Group 3 is somewhat of an anomaly driven by the 46% gain by Glass House, the 14% gain by AYR, and the 107% gain by Goodness Growth.

• Group 4, down nearly 25%, was punished by the 30% decline in Schwazze, the 52% drop in Cannabist, and the 44% selloff in IAnthus.

• Given the continuing capital constraints, lack of new investment, and stubbornly low stock prices, we advise Investors to maintain a majority of investment funds in the strongest group, where Verano, Trulieve, and Cresco continue to appear relatively cheap. In a best-case environment with multiple successful catalysts, this positioning may underperform more risky selections. We, accordingly, recommend a barbell portfolio with a majority of funds in Group 1, with targeted investments in companies of lower strength that have positive torque from Florida and Pennsylvania catalysts.

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.