The Viridian Chart of the Week on 8/27/23 demonstrated that cannabis is more capital-intensive than tobacco, alcohol, pharmaceuticals, or general consumer products. Cannabis measured 1.67x capital/sales. The industry has managed to reduce capital intensity slightly since then, and the group now measures 1.54x capital/sales.
The high capital intensity has severe implications for internally fundable growth. If, on average, it takes $1.54 of extra capital to get $1 of additional sales, with 30% EBITDA margins and high 280e taxes, it is clear that growth requires external financing. S3 will help but not eliminate this issue.
This week’s chart explores the differences between major MSOs in capital intensity and the implications for EBITDA margins and EBITDA/ Capital employed.
The green bars on the chart show each company’s March 2024 Capital employed (book equity+ book debt-cash) divided by its projected next twelve-month sales. Note the significant discrepancy between the least capital-intensive competitor, Jushi (JUSHF: OTCQX) vs. the most capital-intensive AYR Wellness (AYR.A: CSE). Jushi has only $.80 of capital for each dollar of sales, whereas AYR has $2.33 of capital for each dollar of sales.
Check Out the Viridian Chart of the Week to See Our Full Analysis of Capital Intensity for Public MSOs
About Viridian Capital Advisors, LLC
Launched in 2014, Viridian Capital Advisors was one of the first and now leading, corporate finance, advisory and M&A practices in the legal Cannabis/CBD industries, and now in the Psychedelics sector. We represent companies, investors, lenders, buyers and sellers. Our advisory practice is meant to help “institutionalize” our clients before they go to market for capital or M&A – by helping to build a professional Board of Directors, sophisticated financial models and valuation analyses, exit strategies and strategic advisory services. Our investment banking practice raises capital and executes M&A transactions through our New York City based broker-dealer, Bradley Woods & Co. Ltd.
Viridian is widely recognized as the industry leader in research and capital markets data/market intelligence through the Viridian Deal Tracker. Launched in January 2015, the Viridian Deal Tracker is a proprietary data service that monitors and analyzes investment, M&A activity and capital markets trends in the Cannabis, Hemp and Psychedelics industries. We’ve tracked and analyzed more than 6,500 transactions totaling more than $70 billion in transaction value. We know where equity investors invest, where lenders lend and where acquirers acquire. The Deal Tracker is received and read every day by thousands of leading industry players on a global basis, becoming a trusted and valuable source for companies, investors, lenders and sellers/acquirers to make informed capital allocation decisions.
Marijuana remains illegal under federal law. The federal government does not recognize marijuana to have any medicinal value. Marijuana cultivation, possession, consumption, sales, and distribution are illegal under federal laws and also certain state laws. Investors in cannabis may be subject to law enforcement actions. Please note that there are differences in marijuana laws from one state to another. Furthermore there are substantial risks associated with investing in cannabis companies, including, without limitation, changes in laws, rules, and regulations, risks associated with the economy, capital markets, and a company’s ability to execute on its business plan.
