Viridian Capital Advisors

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.

Just a week away!

Can't wait to join this illustrious panel at Cannabis Europa!

The Viridian Chart of the Week looks at the relative capital intensity of major MSOs and the correlation to EBITDA margins and EBITDA to capital employed. -We last reviewed capital intensity in August 2023 and found that the cannabis industry had 1.67x capital employed/next twelve month revenues, higher than tobacco, alcohol, pharmaceuticals or general consumer products. The intensity has come down slightly to 1.54x, and competitors vary widely as shown by the green bars on the graph below. - Interestingly, EBITDA margins appear to be positively correlated to capital intensity. We believe this is probably related to the impact of vertical integration. -Perhaps more interestingly, capital intensity appears to be negatively correlated to a measure of unlevered pretax return on capital - EBITDA/ Capital Employed (Book Debt+ Book Equity-Cash). Our interpretation is that while increased capital serves to increase profit margins, it often punishes return on capital - We expect the capital intensity of the industry to decrease over the long term. Interstate commerce will allow for de-verticalization and also regionalization. Cultivation of commoditized products will become regionalized rather than located in each state, allowing for lowered costs and greater capital efficiency. Similarly, less overhead will be required in each state market reducing capital intensity further. The bad news is that this is, in our opinion at least 5 years away if not more. -In the meantime, investors should focus more on MSO profits in relationship to the capital they employ. Click on the chart below to see the full analysis and writeup.