Cannabis Chart Of The Week: Where Are Sector Leaders Trading Relative To Their 52-Week Highs And Lows?

This week’s Viridian Chart of the Week looks at the stock prices of the leaders in several cannabis sectors, including Agriculture Technology, Cultivation and Retail, Psychedelics, and Financial Services, relative to their 52-week highs and lows. The chart is arranged in increasing order of trading prices relative to 52-week lows within each sector.

• We have also included five top competitors in the beer industry to illustrate the relative performance of a key non-cannabis sector.

• The green bar shows the 12/15/23 stock price for each company as a percentage of its 52-week low. The top of the red bar indicates the 52-week high as a percentage of the 52-week low.

• At a median of 131% of its 52-week lows, the Agriculture Technology sector has slightly recovered from its lows. 

• Cultivation has a median price of 159% of its 52-week lows and an extreme range from 118% for MariMed MRMD to 354% for AYR AYRWF. Companies like AYR and Glass House, having traded up 260% and 354% from their 52-week lows, respectively, have a higher risk of underperformance if there is negative news on rescheduling or the SAFER Act. Glass House is also trading close to its 52-week high, giving us further pause. Several companies, including Cannabist CBSTF and 4Front FFNTF, reacted with extra exuberance to the HHS rescheduling announcement, reaching highs 3.75-4x their current levels. These companies are in the weaker half of the Viridian Credit Tracker credit rankings, and we do not view the fact that they are trading at significant gaps to their 52-week highs as buying signals. Instead, we prefer companies like MariMed, TerrAscend, and Verano, which are top ten credits and have made significant operating improvements but are still trading at relatively low premiums to their lows.

• The Psychedelics sector is up a median of 158% from its 52-week lows and exhibits less volatility than the cultivation and retail sector primarily because it is not subject to the same potential upside catalysts.

• Financial services has the lowest median recovery from 52-week lows at only 124%, but it is also the sector trading closest to its 52-week highs with a median gap of only 41%. 

• The Beer industry points to the future of cannabis. Beer is significantly more concentrated than cannabis, with industry leaders 5-50 times as large as the most significant cannabis company. Brands are well-established and command shelf space. Volatility is substantially lower than cannabis, with a difference between 52-week highs and less than 50% lows. Despite significantly lower growth, the beer companies on the chart trade at an average EV/ 2024 EBITDA of 9.3x vs 6.3x for cultivators.

• We view it as healthy that, with only a few exceptions, cannabis companies are trading at less than 75% premiums to their 52-week lows. Cannabis investors have learned the hard way that betting on regulatory or legislative reforms is risky. There has never been the degree of potential upside as there is now, yet investors are not getting too far out over their skis.

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.