John SchroyerThe analysts at Viridian Capital Advisors celebrated what they saw as a positive trend of debt refinancing deals over the past month, and wrote in their Chart of the Week that “cannabis credit markets have come back to life.”
Viridian cited the July closing by Ascend Wellness Holdings Inc. that utilized $235 million in private placement senior secured notes to refinance some of the company’s debt, followed by a deal by Jushi Holdings Inc. to refinance a $48.5 million loan, and finally a deal by TerrAscend Corp. for a new $140 million loan.
“The market has become more sophisticated with a tremendous spread of yields required based on perceived credit quality, ranging from well under 10% for Green Thumb (GTII: CSE) to over 25% for Cannabist (CBST: Cboe),” Viridian reported.
That, Viridian wrote, begs the question: What metrics should investors monitor to get the best idea of a given company’s health?
The answer, Viridian analysts wrote, is to look for companies that land in between two and seven times their total liabilities relative to market cap. By that metric, Viridian found that out of 30 public cannabis companies, only seven were outside an acceptable liabilities to market cap ratio:
- Red White & Bloom (CSE: RWB)
- Acreage Holdings Inc. (CSE: ACRG.A.U) (OTCQX: ACRDF)
- Gold Flora Corp. (OTC: GRAM)
- Slang Worldwide Inc. (CNSX: SLNG) (OTCQB: SLGWF)
- Medicine Man Technologies Inc., dba Schwazze (OTC: SHWZ)
- TILT Holdings Inc. (Cboe: TILT) (OTCQB: TLLTF)
- StateHouse Holdings Inc. (CSE: STHZ) (OTCQB: STHZF)
“Investors should monitor total liabilities to market cap as an early warning indicator. It is essential to watch the weekly change in the ratio for consistency in the direction and magnitude of movement,” Viridian reported. “We have been noting, for example, a severe deterioration in the ratio for Schwazze (SHWX: CSE) over the last month.”
At one end of the spectrum is Grown Rogue International (CSE: GRIN), which had $23.3 million in total liabilities as of its last quarterly report, compared to a market cap of $119.1 million as of Tuesday, according to Yahoo Finance.
At the other end is StateHouse Holdings Inc., which had $299.5 million in total liabilities as of its last quarterly financial report but a market cap of just $10.2 million as of Tuesday.
That’s also good news, Viridian wrote, for a majority of public cannabis companies analyzed, because 23 of them have “significant financial flexibility and strong asset value coverage of liabilities” and a low risk of defaulting on any debts.
The flip side of that, Viridian noted, is that companies in that position “have lower financial flexibility to withstand an unexpected adverse event and may have significant refinancing risk at debt maturities.”
