Chart: Is Cannabis Debt Priced Accurately? This Unique Credit Tracker Has The Answer

Viridian Capital’s proprietary Cannabis Credit Tracker utilizes 11 financial and market variables to determine a cannabis company’s credit score, including Liquidity, Leverage, Profitability, and Size. The higher the score, the better the company's credit quality. The Viridian Credit Tracker produces relative credit rankings for all sectors of the cannabis industry. The model’s unique credit scoring algorithm is a powerful tool for issuers, lenders and investors, given the lack of credit ratings in the industry.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

Launched in January 2015, and having analyzed more than $60B in deals, the Viridian Cannabis Deal Tracker is a proprietary data service that monitors and analyzes capital raise and M&A activity in the legal cannabis and CBD industries. Each week the Deal Tracker provides proprietary data and market intelligence on transactions, including:

Photo by Javier Hasse.

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• The green bars in the graph show the effective cost % of all U.S. Cultivation & Retail sector debt issues larger than $25M since the beginning of December 2021. The orange line shows these companies' Viridian Capital Credit Tracker Credit Score as of February 4, 2022. The graph is arranged in decreasing order of credit quality (decreasing credit score). Note: No credit score is available for PharmaCann because the company is private and does not publish financial data.

• The model shows that the companies on the right deserve their higher effective cost. The more difficult question is whether 100 basis points is sufficient compensation between Verano and Columbia Care. Increasing access to secondary market trading data should allow us to calibrate these differences better and provide a more accurate pricing model with our unique credit strength rating system.

• The effective cost of debt generally increases as the credit score increases. The significant decline in model-rated credit quality between Curaleaf CURLF and Goodness Growth GDNSF is due to the four companies with ratings between Curaleaf and Goodness Growth that did not complete debt issues in this period.  (MariMed, AYR, TerrAscend, and Ascend). 

• Interestingly, Goodness Growth and Medicine Man SHWZ are both ranked similarly to Columbia Care and Glass House, but both had significantly higher effective costs. Concerning GDNS, we believe the likely bridging nature of the credit extension adversely influenced the pricing. We expect this debt to be refinanced. Meanwhile, SHWZ is the only equity-linked credit on the list. Its 21% effective cost is primarily due to the value of its low premium conversion option (14%), which adds approximately 8% to the effective cost.

• 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)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer)

• 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)

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