Viridian Chart Of The Week: How Much Is Liquidity Worth? (It's Complicated)

• In recent weeks, the largest U.S. Cannabis companies have raised record amounts of equity capital, significantly boosting liquidity.

• The graph displays Enterprise Value/Consensus 2021 EBITDA estimates for 36 U.S. Cannabis companies in the Viridian Value Tracker database, ranked by size and liquidity level.

• The left side of the graph shows the 20 companies with less than $1 billion in market cap, while the bars on the right represent the 16 companies with over $1 billion in market cap.

• The blue bars display EV/2021 consensus EBITDA while the yellow bars show the Viridian cash flow adjusted current ratio (calculated by adding annualized free cash flow to current assets in the standard current ratio).

• Note that while the smaller companies have significantly lower valuation metrics, valuation increases as liquidity increases.

• Interestingly, the opposite is true for the large companies -- valuation declines as liquidity measures increase. 

• The likely explanation is that the smaller companies are more dependent on balance sheet liquidity, whereas the $1B + companies have nearly unprecedented access to the capital markets.

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• With access to liquidity, maintaining extra balance sheet liquidity is not only unnecessary but potentially costly.

The Viridian Cannabis Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis and hemp industry. Each week the Tracker aggregates and analyzed all closed deals and segments each according to key metrics:

• Industry Sector (one of 12 sectors, from Cultivation to Brands)

• Dollar value of the transaction

• Region in which the deal occurred (country or U.S. state)

• Status of the company announcing the transaction (Public vs. Private)

• Deal structure (equity vs. debt)

• Key deal terms (Pricing and Valuation)

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.

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.

Photo by Javier Hasse.

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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