JUNE 21 2024 – We looked at the five largest cannabis lenders/sales-leaseback providers to try to ascertain whether they are fairly valued or not. Astute readers will point out that lenders like Chicago Atlantic, AFC Gamma, and Silver Spike are in a different business than sales leaseback providers such as IIPR and NewLake Capital. The lenders have collateralized loans, whereas the SL companies actually own the underlying real estate. Nonetheless, we view the two businesses as more similar than different: both accept credit risk from cannabis SSOs and MSOs in return for a spread on their cost of capital.
The cleanest measure of market valuation for these companies is the market-to-book ratio, portrayed by the green bars in the graph below.
We know that, generally speaking, more profitable companies tend to trade at more significant premiums to book ratios. We have chosen annualized Funds from Operation/ Total Assets as our key profitability measure, as shown by the rust-colored line with markers on the graph.
The other two show the relative equity risk via leverage. The purple line depicts the total liabilities to market cap, our overall favorite leverage indicator. The blue line shows a more standard balance sheet leverage measure, total liabilities to total assets.
The graph generally conforms to our notions of how valuation in the sector should work. Higher profitability is strongly correlated with higher market-to-book, while higher leverage is negatively correlated.
Check Here to See Our Complete Analysis of Valuations for Our 12 Industry Sub-Sectors
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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.
