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Japan Tobacco primarily sells cigarettes and reduced-risk products, organized in three clusters consisting of Asia (which includes its home market and countries in Asia Pacific), Western Europe, and EMA (which includes Eastern Europe, the Middle East North Africa, Turkey, Americas, and duty-free). Its leading cigarette brands include Winston (non-US), Camel (non-US), Mevius, and LD. Its reduced-risk brands include Logic in vaping and Ploom in heated tobacco, though this category generates less than 5% of tobacco sales.

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Recent research conducted by Viridian Capital Advisors reveals that the cannabis sector requires more capital as compared to other similar industries.

Cannabis Industry&#39;s Capital Crunch: Why It Needs More Funds Than Other Industries, Will Fed Legalization Change This?

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The chart explores the capital intensity of cannabis compared to four other industries thought to be likely suitors for cannabis companies upon federal legalization: Tobacco, Alcoholic Beverages, Pharmaceuticals, and Consumer Products.

Viridian Chart Of The Week: How Capital Intensive Is Cannabis?

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Recent research conducted by Viridian Capital Advisors&nbsp;reveals that the <a href="https://www.benzinga.com/cannabis">cannabis sector</a> requires more capital as compared to other similar industries.
The findings offer a unique perspective into the challenges the cannabis industry faces, especially considering the potential for <a href="https://www.benzinga.com/topic/cannabis-legalization">federal legalization</a> and the subsequent acquisition of interest from other sectors.
<a href="https://www.benzinga.com/topic/scott-greiper">Scott Greiper</a>, president &amp; founder of Viridian Capital Advisors, will be a <a href="https://www.benzinga.com/events/cannabis-conference/#featured-speakers">featured speaker</a> at the upcoming<a href="https://www.benzinga.com/go/cannabis-conference-article-link" target="_blank">&nbsp;Benzinga Cannabis Capital Conference</a>&nbsp;in Chicago from September 27-28. Expect him to delve into this crucial topic during his presentation.
Related Content: <a href="https://www.benzinga.com/markets/cannabis/23/06/33011031/federal-marijuana-legalization-is-doable-and-urgently-needed-says-cannabis-coalitions-new-white-">Federal Marijuana Legalization Is Doable And Urgently Needed, Says Cannabis Coalition&#39;s New White Paper</a>
<h3>Breakdown of Companies Surveyed</h3>
For this research, <a href="https://www.benzinga.com/topic/viridian-capital-advisors">Viridian</a> chose to evaluate the capital needs of the cannabis industry against four potential acquirer sectors in the event of federal legalization.
Here&#39;s a breakdown:
<ul>
<li>Cannabis: Includes nine multistate operators boasting market caps exceeding $100 million.</li>
<li>Tobacco: Comprises British American Tobacco (NYSE:&nbsp;<a href="https://www.benzinga.com/quote/BTI/analyst-ratings">BTI</a>), Altria Group Inc (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mo#NYSE">MO</a>), Philip Morris International (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pm#NYSE">PM</a>), and Japan Tobacco (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/japaf#NYSE">JAPAF</a>).</li>
<li>Alcoholic beverages: Encompasses ABEV (NYSE:&nbsp;<a href="https://www.benzinga.com/quote/ABEV/analyst-ratings">ABEV</a>), Brown-Forman (NYSE: <a href="https://www.benzinga.com/quote/BF-B/analyst-ratings">BF/B</a>), Constellation Brands (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/stz#NYSE">STZ</a>), Diageo (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/deo#NYSE">DEO</a>), and Molson Coors (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/tap#NYSE">TAP</a>).</li>
<li>Pharmaceuticals: Features giants like Johnson &amp; Johnson (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/jnj#NYSE">JNJ</a>), Pfizer (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pfe#NYSE">PFE</a>), Merck &amp; CO. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mrk#NYSE">MRK</a>), and Eli Lilly (<a href="https://www.benzinga.com/quote/LLY/analyst-ratings">NYSE</a>: LLY).</li>
<li>Consumer products: Colgate Palmolive (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/cl#NYSE">CL</a>), Mondelez&nbsp;(NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mdlz#NYSE">MDLZ</a>), Proctor &amp; Gamble (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pg#NYSE">PG</a>), and Unilever (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/ul#NYSE">UL</a>), <a href="https://www.benzinga.com/markets/cannabis/23/08/34073822/viridian-chart-of-the-week-how-capital-intensive-is-cannabis">per</a> Viridian&#39;s report.</li>
</ul>
Related Content:&nbsp;<a href="https://www.benzinga.com/general/biotech/23/03/31227249/from-controversial-to-profitable-why-nestl-procter-gamble-pepsico-and-other-cpg-brands-should-emb">From Controversial To Profitable: Why Nestl&eacute;, Procter &amp; Gamble, PepsiCo And Other CPG Brands Should Embrace Cannabis</a>
Viridian elaborated on its methodology, stating that the capital intensity of each group was calculated by the aggregate &quot;next 12-month consensus revenue estimates divided by aggregate capital employed (book equity + total debt &ndash; cash).&quot; To put it simply, &ldquo;the lower the bar, the more capital the industry needs to generate $1 in sales,&rdquo; <a href="https://www.greenmarketreport.com/cannabis-wins-the-title-for-most-capital-intensive-industry/">wrote</a> co-founder, and executive editor of Green Market Report, <a href="https://www.benzinga.com/topic/debra-borchardt">Debra Borchardt</a>.
Borchardt will be also a <a href="https://www.benzinga.com/events/cannabis-conference/#featured-speakers">featured speaker</a> at the upcoming <a href="https://www.benzinga.com/go/cannabis-conference-article-link" target="_blank">Benzinga Cannabis Capital Conference</a>, set for September 27 - 28 in Chicago.
<img alt="cccchicago.jpg" src="https://www.benzinga.com/files/u1084344/cccchicago.jpg" style="height:292px; width:555px" />
<h3>Insights From The Report</h3>
Frank Colombo, a Viridian analyst, stressed the importance of these findings. &ldquo;The capital intensity issue is a big one for cannabis,&rdquo; he noted.
Though some operators might argue that recent significant investments will facilitate long-term growth without much need for additional capital, the consistent data across the group suggests otherwise. &ldquo;I have also used forward 12-month sales to account for this. The idea is that your capital comes ahead of your sales,&rdquo; Colombo explained.
The fact that cannabis remains a federally illegal product in the U.S. has significantly contributed to these capital challenges. <a href="https://www.benzinga.com/money/multi-state-operators">Multistate operators</a>&nbsp;(MSOs), as highlighted in the chart, have to maintain overlapping operations because their products cannot&nbsp;move across state lines. This restriction has inadvertently led to inefficient businesses, resulting in them spending more than their counterparts in legally compliant sectors.
Related Content:&nbsp;<a href="https://www.benzinga.com/markets/cannabis/23/07/33421405/safe-harbor-financial-originates-three-new-loans-to-cannabis-multi-state-operator">Safe Harbor Financial Originates Three New Loans To Cannabis Multi-State Operator</a>
However, hope is on the horizon.
&ldquo;The good news, as I tried to point out, is that when and if interstate commerce happens it will help this issue significantly,&rdquo; said Colombo.
If cannabis becomes federally legalized, these operational costs could decline, allowing MSOs to centralize their operations and thereby eliminating redundancy.
Despite these insights, there&#39;s a palpable challenge for cannabis companies. Many are struggling with mounting debt&nbsp;and the pressing <a href="https://www.benzinga.com/markets/cannabis/22/04/26728429/exclusive-how-are-cannabis-companies-navigating-the-current-capital-dry-spell?__hstc=99187265.5f9429f39ec84198c27780d1a5c17679.1679584881252.1693275358998.1693333463118.81&amp;__hssc=99187265.3.1693333463118&amp;__hsfp=2994004569">need for more capital</a>&nbsp;as well as access to&nbsp;willing investors. &ldquo;The capital shortage matched with capital intensity makes rapid growth impossible,&rdquo;&nbsp;Colombo concluded.
Related Content: <a href="https://www.benzinga.com/markets/cannabis/23/08/33992222/alcohol-association-to-congress-create-regulatory-category-for-hemp-derivatives-like-cbd-and-del">Alcohol Association To Congress: Create Regulatory Category For Hemp Derivatives Like CBD And Delta-8 THC</a>
The <a href="https://www.benzinga.com/cannabis">cannabis industry</a>&#39;s future is at stake and federal legalization could be the game-changer. If you want to delve deeper into these topics consider joining us at the <a href="http://www.benzinga.com/go/cannabis-conference-article-link" target="_blank">Benzinga Cannabis Capital Conference</a>&nbsp;in&nbsp;Chicago on September 27-28.&nbsp;All information is available on&nbsp;<a href="http://www.benzinga.com/go/cannabis-conference-article-link" target="_blank">bzcannabis.com</a>
Image by <a href="https://www.benzinga.com/author/el-planteo">El Planteo</a>

Cannabis Industry's Capital Crunch: Why It Needs More Funds Than Other Industries, Will Fed Legalization Change This?

The chart explores the capital intensity of cannabis compared to four other industries thought to be likely suitors for cannabis companies upon federal legalization: Tobacco, Alcoholic Beverages, Pharmaceuticals, and Consumer Products.
<img alt="ntm_sales_to_invested_cap.png" src="https://www.benzinga.com/files/images/2023/August/28/ntm_sales_to_invested_cap.png" style="height:450px; width:425px" />
In the chart, the cannabis group comprises the nine MSOs with market caps over $100M.&nbsp;&nbsp;
Tobacco includes British American Tobacco (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/bti#NYSE">BTI</a>), Altria (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mo#NYSE">MO</a>), Phillip Morris International (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pm#NYSE">PM</a>), and Japan Tobacco (OTC: <a class="ticker" href="https://www.benzinga.com/stock/japaf#OTC">JAPAF</a>).
Alcoholic Beverages include ABEV (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/abev#NYSE">ABEV</a>), Brown-Forman (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/bf-b#NYSE">BF-B</a>), Constellation Brands (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/stz#NYSE">STZ</a>), Diageo (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/deo#NYSE">DEO</a>), and Molson Coors (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/tap#NYSE">TAP</a>).
Pharmaceuticals include Johnson &amp; Johnson (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/jnj#NYSE">JNJ</a>), Pfizer (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pfe#NYSE">PFE</a>), Merck &amp; CO. (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mrk#NYSE">MRK</a>), and Eli Lilly (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/lly#NYSE">LLY</a>).
Consumer Products include Colgate Palmolive (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/cl#NYSE">CL</a>), Mondeles (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mdlz#NYSE">MDLZ</a>), Proctor &amp; Gamble (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pg#NYSE">PG</a>), and Unilever (NYSE: <a class="ticker" href="https://www.benzinga.com/stock/ul#NYSE">UL</a>).
The capital intensity of each group (depicted by the green bar) is measured by its aggregate next twelve-month consensus revenue estimates divided by aggregate capital employed (book equity + total debt &ndash;cash). The lower the bar, the more capital the industry requires to generate $1 in sales.
The chart shows that cannabis is the most capital-intensive of the industries shown.
NYU professor Aswath Damodaran publishes an annual <a href="http://pages.stern.nyu.edu/~adamodar/New_Home_Page/dataarchived.html">study</a> of approximately 7,000 companies in 94 industries, and only 16 of the 94 industries are more capital-intensive than cannabis. (Damodaran does not include cannabis in his studied industries.)
Cannabis capital intensity is related to federal illegality. Cannabis companies must cultivate cannabis in each state where they sell the product, an economically inefficient practice. Post-legalization, we would expect a more centralized or at least regionalized structure to develop. Similarly, cannabis companies are forced to maintain duplicate managerial and operations functions that would be eliminated in an interstate commerce environment.
Like 280e, excess capital intensity is an economic burden imposed on cannabis, the removal of which we expect to improve cannabis economics and cash flow- eventually.
&nbsp;
The Viridian Capital Chart of the Week highlights key investment, valuation and M&amp;A trends taken from the Viridian Cannabis Deal Tracker.
The <a href="https://viridianca.us1.list-manage.com/track/click?u=078ead34a8bbcfd77b0486326&amp;id=c89a19f9ee&amp;e=2699f9b787">Viridian Cannabis Deal Tracker</a> provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&amp;A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&amp;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:
<ul>
<li>
Deals by Industry Sector (To track the flow of capital and M&amp;A Deals by one of 12 Sectors - from Cultivation to Brands to Software)
</li>
<li>
Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&amp;A) Status of the company announcing the transaction (Public vs. Private)
</li>
<li>
Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)
</li>
<li>
Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)
</li>
<li>
Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&amp;A Deals by State and Country)
</li>
<li>
Credit Ratings (Leverage and Liquidity Ratios)
</li>
</ul>
Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&amp;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.

<ul>
<li>Lately, e-cigarette maker&nbsp;Juul Labs Inc&nbsp;had separate discussions with&nbsp;Philip Morris International Inc&nbsp;(NYSE: <a class="ticker" href="https://www.benzinga.com/stock/pm#NYSE">PM</a>),&nbsp;Japan Tobacco&nbsp;(OTC: <a class="ticker" href="https://www.benzinga.com/stock/japaf#OTC">JAPAF</a>) (OYTC: JAPAY), and&nbsp;Altria Group, Inc&nbsp;(NYSE: <a class="ticker" href="https://www.benzinga.com/stock/mo#NYSE">MO</a>) over a potential sale, investment or partnership.</li>
<li>Altria, which owns a 35% stake in Juul, valued the vaping company at $1 billion in October, the Wall Street Journal&nbsp;<a class="editor-rtfLink" href="https://www.wsj.com/articles/juul-in-deal-talks-with-three-tobacco-giants-11674673730?mod=hp_lead_pos13" style="color:#4a6ee0; background:transparent; margin-top:0pt; margin-bottom:0pt" target="_blank">reports</a>.</li>
<li>Juul, which represents 27% of e-cigarettes sold in U.S. stores tracked by Nielsen, was on the verge of bankruptcy in 2022 amid a regulatory dispute over its existence in the U.S. market.</li>
<li>The U.S. pursued a federal&nbsp;<a class="editor-rtfLink" href="https://www.benzinga.com/government/22/06/27808447/biden-administration-working-on-capping-nicotine-levels-in-tobacco-products" style="color:#4a6ee0; background:transparent; margin-top:0pt; margin-bottom:0pt" target="_blank">ban on menthol cigarettes</a>. California has already banned menthols.&nbsp;</li>
<li>The U.S. proceeded to eliminate nearly all nicotine from cigarettes.</li>
<li>As federal regulators revamped the industry, big tobacco companies competed to grab pieces of the U.S. e-cigarette market.</li>
<li>The FDA in June ordered Juul to halt its U.S. sales which neared the settlement of lawsuits accusing it of marketing its&nbsp;<a class="editor-rtfLink" href="https://www.benzinga.com/news/23/01/30518861/juuls-consumer-settlement-is-reasonable-adequate-us-judge-says" style="color:#4a6ee0; background:transparent; margin-top:0pt; margin-bottom:0pt" target="_blank">products to children and teens</a>.</li>
<li>Juul reached talks with Altria last fall on a potential deal to sell Juul&rsquo;s international business or license its U.S. intellectual property. Still, those talks fell apart in September as Juul&nbsp;<a class="editor-rtfLink" href="https://www.benzinga.com/news/22/10/29150780/e-cigarette-maker-juul-mulls-bankruptcy" style="color:#4a6ee0; background:transparent; margin-top:0pt; margin-bottom:0pt" target="_blank">prepared for a possible bankruptcy</a>.</li>
<li>Last September, Altria shared plans to end the agreement with Juul, which helped the latter prepare for its sale.</li>
<li>In January, Juul CEO K.C. Crosthwaite and other executives traveled to Switzerland, where Japan Tobacco and Philip Morris are based, to discuss Juul&rsquo;s newly expanded option.</li>
<li>Juul has also resumed discussions with Altria.&nbsp;Altria cannot buy Juul outright over antitrust concerns.</li>
<li>If the FDA ultimately halts Juul&rsquo;s sales, Juul could seek U.S. authorization for a newer version of its vaporizer released in Canada and the U.K.&nbsp;</li>
<li>Price Action:&nbsp;MO shares traded higher by 0.11% at $44.98 in the premarket on the last check Thursday.</li>
</ul>

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