Viridian Capital Advisors

Weekly?Viridian Valuation Report – ?2025 EBITDA Estimate Revisions YTD Due to Changes in Revenues and EBITDA Margins o??We believe that analyst estimate revisions for the full year 2025 carry more weight than the beats or misses on the 4th quarter 2024 reports. o??The chart below takes the % analyst revisions to 2025 EBITDA estimates and decomposes them into the portion that was attributable to revised revenue projections (blue bars) and the part that was attributable to revised EBITDA margin estimates (orange bars). The green line indicates the total percentage revision in 2025 since the beginning of the year. o??Analysts have revised downward EBITDA estimates for eight of the fourteen companies on the graph. The group aggregate has been moved lower by 4.38%. Curaleaf (CURA: TSX), Cannabist (CBST: TSX), and Verano (VRNO: Cboe) have all had their estimates lowered by more than 5%. Conversely, the most significant estimated increase of 2.15% was for Vireo (VREO: CSE). o??The preponderance of orange on the graph shows that most of the revisions were caused by reduced EBITDA margin estimates. The causes are not complex to identify: continued inflationary cost pressures matched with wholesale price compression in most markets. o??With little near-term visibility for either new adult-use markets (where margins tend to be at least temporarily stronger) or the cessation of price compression, the case for better margins lies in intrastate consolidations and the creation of more oligopolistic pricing. o??Still, there are tremendous variations within the industry. Some competitors are able to make strong margins in highly competitive markets like California and Michigan, while others have poor margins in less competitive states. A stressful environment of capital shortages, regulatory challenges, and constrained consumer budgets is increasingly separating the strong operators from the weak,

Thx Javi good follow up!

One of the reasons Viridian Capital Advisors has long favored the total liabilities to market cap leverage ratio is that this ratio, along with option valuation techniques can be used to derive an estimate of the company's market value asset coverage of its liabilities. Using the notion that a company's equity can be thought of as a call option on the value of the assets with a strike price of its liabilities, we can iterate option valuations to discover what asset value coverage the company's total liabilities to market cap implies. Just becasue the company's equity doesnt trade at zero doesnt mean the liabilities are covered by asset values. Haven't you had the feeling that if the music stopped suddenly, quite a few companies would be left with worthless equity? Well, you were right!! The chart below shows the asset value coverage of liabilities of 30 MSOs. Note that when total liabilities to market cap goes above about 5x, it is a good indication that your equity may be underwater. See more detailed discussion at dealtracker.viridianca.com.

Cash Flow From Operations Never Lies, But It Doesn't Always Tell the Whole Truth o??The reason is simple: it is a hard number that is invariant to most accounting manipulations. Change your depreciation method or life? It doesn't matter; CFFO stays the same. Change your inventory accounting method? It doesn't matter; CFFO stays the same. Change your revenue recognition policy? It doesn't matter; CFFO stays the same. Etc. o??But as good a number as CFFO is, there are still many ways to skin the cat. Do you want to increase your cash flow from operations? It's simple: just don't pay your bills when they are due. Stretching your payables increases cash flow! And that includes tax payables. o??The graph below looks at the percentage of YTD 9/30/24 cash flow from operations for the big 10 MSO that comes from increases in accrued taxes. We include those fun new accounts called "uncertain tax positions," which are almost always classified as long-term liabilities (daring the IRS to come collecting?) o??The graph shows that a substantial portion (averaging 60% for the group) of YTD cash flow from operations is produced by increased accrued taxes. In fact, for the three companies on the right, increased tax accruals account for more than 100% of cash flow from operations. o??Viridian takes these tax liabilities into account when we calculate adjusted net debt. We add any tax liabilities in excess of 90 days of tax expense as debt. These extra debts add to $1.25B for the companies on the chart. o??The MSOs are taking an early tax holiday by not paying their 280e taxes. This will, at best, blunt the benefits of 280e elimination. After all, if you aren't paying the tax now, then you won't save any when they tell you you don't have to pay it. At worst, these amounts add to the substantial upcoming debt maturities in 2026. o??To be fair, large sums (millions?) have been spent on the best tax advice money can buy to justify not paying 280e taxes, and in the worst case, holding on to your cash longer is always a good thing. But they don't call them "uncertain tax positions" for nothing.

I'm excited to be MCing and moderating panels of the finance track at #MJBizCon on Dec 3! Let's catch up in Vegas! Get your ticket today. Here's a 20% off promotion code: MIGL24SPK.?See you there!

Appreciate the shout out CTrust!

Thanks CTrust!

Thank you Mark when we dipped into the Viridian Cannabis Deal Tracker to prepare this weeks Insightsbof the Week it was very exciting to uncover the increase in capital investment in the industry. Let’s hope this trend continues.

o??This week's Viridian Credit Report ranks the sixteen ?U.S. Cultivation and Retail companies with market caps over $150M in order to place the announced Ascend Wellness (AAWH: OTCQX) refinancing in perspective. o??The green line on the chart below shows the Viridian Capital Credit Tracker ranking each company based on the model's four credit evaluation factors: Liquidity, Leverage, Profitability, and Size)?The red line shows the leverage ranking, which is the most important of the four factors. The black line shows the liquidity ranking, which is the second most crucial factor. We have modified our calculation of the annualized free cash flow and adjusted the current ratio to place slightly less evidence on the most recent quarter's free cash flow and more on LTM free cash flow. We adjusted the calculation because companies in highly seasonal states were being overly punished for their low free cash flow in seasonally low quarters. o??The blue squares on the chart depict the offered side yields of the debt obligations of each company, closest to a 2026 maturity. Several companies, like TerrAscend (Gage) (TSND: TSX), are trading to much shorter maturities, which skews the comparability of their yields. On a matched maturity basis, we do not think TerrAscend would trade at a lower yield than Trulieve (TRUL: CSE), Verano (VRNO: Cboe), or Curaleaf (CURA: TSX). Note that Ascend's yield is the 14.25% YTM of its announced deal. o??Cansortium's (TIUM.USD: CSE) #8/16 ranking is based on our proforma analysis of its planned merger with RIV Capital (RIV: CSE). o??Trading yields correspond pretty closely with our credit rankings, and Ascend's yield strikes us as attractive relative to our view of its credit quality. The over 400bps yield pickup from trading out of Curaleaf into Ascend is excessive. AYR is priced over 400bps higher than Ascend, and we think it is an attractive bet at these yields. AYR has a significant refinancing hurdle to overcome in 2026, and the outcome of Florida AU will influence its ability to achieve that. Investors who strongly believe Florida AU will pass may want to move out the credit curve to AYR.? o??Ascend's successful refinancing signals an opening of the credit markets, and we expect other solid MSOs to follow suit. In particular, GTI has a $275M term loan maturing on 4/25, and we expect the company to take action to refinance that relatively soon. We would expect the coupon to be significantly lower, perhaps under 10%. Similarly, TerrAscend (TSDN: TSX) still needs to refinance some of its 2024 maturities, and the company is apparently working on it now. We would not be surprised if it requires a yield in the mid-teens.

Thank you Wana Brands! We are thrilled to welcome Sandy to the Viridian Capital Advisory Board.