Over the last two weeks, TerrAscend (TER: CSE), Verano (VRNO: CSE), and Acreage (ACDRF: CSE) have obtained new credit agreements with interest rates in the low teens, demonstrating that Tier one MSOs still have solid, albeit expensive, access to the credit markets.
Smaller public and private companies have constrained access to debt, and rates are likely to be high and contain equity kickers for many of these companies. Companies with liquidity pressures, including maturing debt, may be subjected to effective costs as high as 30%.
Accordingly, we are watching liquidity more carefully and have recently adjusted the Viridian Credit Tracker Scoring model to place a higher weight on this factor.
The companies on the graph are the 18 U.S. Cultivation & Retail companies in the Viridian database with market caps between $10M and $200.
The green bars in the chart show the Viridian Credit Score for each company arranged in increasing order of credit quality.
The model uses 11 financial and market-based variables to evaluate: four credit quality aspects: Liquidity, Leverage, Profitability, and Size.
The Viridian credit model is particularly valuable for companies in this size range because ten of the eighteen have no analyst coverage.
The purple line shows the relative ranking on our liquidity score, which considers the company's liquid assets, its free cash flow burn, and its near-term liabilities, including debt maturities. Companies with Liquidity ranks below 12 will likely require incremental financing over the next year. Ten of the eighteen companies on the chart have negative cash flow from operations in the most recent quarter.
The orange line shows the Viridian Leverage rank. Ranks below ten generally coincide with debt to market cap measures over 3x, which we consider indicative of financial stress.
Viridian's multi-factor model considers the tradeoffs inherent in each company's financial picture. For example, MariMed (MRMD: CSE) scores low on liquidity and is likely to require near-term financing; however, it has one of the lowest overall leverage ratings, giving us confidence that it should be able to obtain funding.
The constrained capital market environment makes it critical that debt and equity investors monitor credit quality closely, and the Viridian Credit Tracker model can be a valuable tool.