U.S. Cultivation & Retail sector companies have enjoyed rapidly expanding valuation metrics since the beginning of 2021. However, the gains have not been equally shared. The Viridian Cannabis Value Tracker shows that since August, the gap between the Enterprise value to EBITDA multiple for the largest companies has widened.
The graph displays Enterprise Value/Consensus 2021 EBITDA estimates for U.S. Cultivation & Retail Sector companies with more than $500 million of market cap vs the same measure for companies with less than $500 million market cap. The gap between the two was as low as 4.2 multiple points at the end of September but has widened to a peak of 16.7 points currently.
There are a number of plausible reasons for this widening gap:
-The stocks of the larger companies are more liquid and therefore more attractive to incoming institutional investors.
-The larger companies are seen as more likely up-listing candidates upon federal legalization.
-The larger companies are more developed, more profitable and generally safer.
Viridian’s leading Equity Research analyst, Jon Decourcey, has been pressing the alternate case for investing in:
-Great opportunities in slightly smaller, less covered names.
-More attractively priced.
-Higher growth potential.
-Fixable problems that can boost value.
-Good candidates for acquisition.