Cannabis Chart Of The Week: Are There Good Values Among Canadian Cannabis Companies?

This week's chart explores the valuation and credit of the eighteen U.S. and Canadian cannabis companies with market caps between $20M and $100M. The presence of U.S. and Canadian companies in the group allows for comparing credit quality and valuation.

• The bars show enterprise value to annualized revenue. The green line shows the Viridian Capital model credit ranking, the black line depicts the Viridian Capital liquidity ranking, and the blue line represents the Viridian Capital leverage ranking. The graph is arranged with the best-ranked credits on the left.

• Surprisingly, given most investors' negative perception of the Canadian cannabis industry, five of the top-ranked companies by credit quality are Canadian.

• Avant Brands AVTBF ranks as the top credit quality company in the group. The company has excellent liquidity with a cash flow adjusted current ratio of 2.49x as of its April quarter end and 2.78x proforma for its recent $2.65M credit facility. Leverage is the third lowest of the group thanks to its 2nd place total liabilities to market cap and funds from operation to total liabilities. AVNT has four consecutive quarters of positive cash flow from operations and adjusted EBITDA. The only rub is that it is priced for growth with the second-highest enterprise value to annualized sales of the group (1.95x). Still, the company was proactive in blowing out the stale inventory it acquired in its February acquisition of FLOWR out of Canadian bankruptcy. It stands to gain from the increased production capacity, which will now be oriented towards AVNT's fast-selling premium flower.

• Rubicon Organics ROMJF is another reasonable-looking Canadian operator from a credit point of view. The company has strong liquidity, low leverage, positive adjusted EBITDA, and cash from operations. Knocks on the company include its #13/18 profitability ranking and its minimal size (Total assets= $40m. Market cap=$21M). Still, ROMJ is priced at only .9x annualized sales.

• High Tide HITI trades at .3x annualized revenues and 4.0x annualized adjusted revenues. The company's thin 7.5% EBITDA margins are somewhat concerning as it is low liquidity with a free cash flow adjusted current ratio of only 1.08x. Still, the company's leverage on both a market basis and funds from operations/ liabilities basis are amongst the best of the group.

• Decibel Cannabis DBCCF ranks as the seventh strongest credit of the group due to its 7th ranking in leverage and liquidity. Decibel has been gaining market share and is now the 2nd largest Canadian LP by market share. Its solid profitability (EBITDA margin of 25%), positive cash from operations, and free cash flow make it worthy of consideration at its trading value of .85 EV/ annualized revenues.

• There are several attractively priced Canadian cannabis companies with solid credit quality. Investors should look to diversify with a small allocation in these smaller solid Canadian players.

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.