November 11, 2024 – Third quarter 2024 earnings reports have been disappointing. Nine of the top 15 MSOs, accounting for approximately 86% of the group’s total market cap, have reported, and aggregate revenues and EBITDA missed by 3.2% and 2.3%, respectively, from what were already pretty downbeat projections.
Still, analysts are expecting a 2.6% revenue growth for the full year 2024, based on a 1.6% growth in the fourth quarter compared to a 3.0% growth for the first three quarters. EBITDA is projected to be up 9.1% for the year based on a flat fourth quarter compared to a 12.4% increase for the first three quarters.
Interestingly, despite the slowing trend in revenue and EBITDA growth, analysts are calling for 8.1% growth in revenues for 2025 and nearly a whole point increase in EBITDA margins, producing a 12% gain in EBITDA.
These relatively optimistic projections seem totally disconnected from the reality that the group is trading at a lower multiple of the next twelve-month EBITDA than it was just prior to the original HHS rescheduling announcement on 8/30/23.
Why is the market so pessimistic compared to the analysts? We believe we are looking at a “growth panic” as investors fret about where the oft-promised industry growth will come from.
Growth challenges are real and include:
- Over 50% of the U.S. population lives in states that are adult-legal, but the pace of new states going adult-legal, which has been a big part of the growth equation, is now slowing. Florida whiffed, PA seems unlikely for 2025, and VA probably won’t get its act together until a new governor in 2026. So what’s left? Want to bet on New York getting its act together?
- Price compression has not gone away and is now attacking revenues in New Jersey and Florida.
- The capital crunch is still ongoing, and the entrance of new investors is hostage to regulatory/legal reforms.
- And the big wildcard: How much of cannabis’s lunch will be eaten by intoxicating cannabinoids? Consumers seem plenty happy with their ability to get high from convenience store fare, and the siren song of shopping online for delivery is powerful.
Despite all of this, we find valuations unreasonably low. The market is priced for a catastrophe we don’t see heading our way.
View This Week’s Viridian Chart of the Week For More Detail
About The Viridian Cannabis Deal Tracker
Launched in January 2015, and having analyzed more than $75B 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, Hemp, and Psychedelics industries. Our insights help companies, investors, lenders and acquirers make informed capital allocation decisions. Each week the Deal Tracker provides proprietary data and market intelligence on transactions, including:
– Deals by Industry Sector (Track the Flow of Capital and M&A Deals by Industry Sector)
– 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 (Track the Flow of Deals by State and Country)
– Credit Ratings (Leverage and Liquidity Ratios)
Contact
Scott Greiper
CEO
Viridian Capital Advisors, LLC
646.330.0704
sgreiper@viridianca.com
