Only One Cannabis MSO Is Financially Stable And With Financially Efficient Operations

By Lorimer Wilson of munKNEE.com
Wednesday, October 12, 2022 5:09 PM EDT


Last week's article (see article here) on the American Cannabis MSOs Index, which tracks the performance of the 13 largest pure-play vertically integrated companies, reported the extent to which each constituent would likely experience financial distress - even the possibility of going bankrupt - within the next 2 years based on their individual Altman-Z Scores.


Altman-Z Scores

Based on the Altman-Z Score calculations (Source), which have an accuracy rate ranging from 82% to 94%, 11 of the 13 constituents (except Green Thumb and Planet 13) have a 70% or more chance of going bankrupt or at least encountering some serious financial distress, within the next 2 years.


Positive Operating Cash Flows

Last week's article also identified the only constituent, Green Thumb, which has a true (read  Life Expectancy Declining At Some MSO Companies for an explanation of true) positive operating cash flow (Source), i.e. money coming in through sales minus operating expenses, which is essential for a company to survive.


Operational Efficiencies in EBITDA, Interest, and Net Income Margin Growth

With only one constituent earning a true net profit, today's article takes a look at each of the 13 constituents' operational efficiencies based on:

  1. their earnings before interest, taxes, depreciation, and amortization (EBITDA) in comparison to their EBITDA in 2021. A positive EBITDA indicates that the company is making at least some headway in generating cash flow and the trend in EBITDA margin in the second quarter of 2022 versus FY 2021 shows the extent to which that is being accomplished,
  2. their interest expense growth in Q2, 2022, and
  3. their net income margin growth in Q2, 2022 in addition to
  4. whether, or not, they had a positive net operational cash flow,
  5. whether, or not, there was any positive growth in Q2, 2022. in their net operational cash flow, and 
  6. their chance of experiencing financial distress within the next 2 years.


Greatest Financial Stability and Best Financial Efficiencies

  1. Green Thumb (GTBIF)
    • Net operational cash flow: positive
    • Net operational cash flow growth in Q2, 2022: negative
    • Chance of experiencing financial distress in the next 2 years: only 12%,
    • EBITDA margin: increased from 35.5% in FY2021 to 38.0% in Q2 2022,
    • Interest expense growth: slowed to 10.3% in Q2 2022 and
    • Net income margin growth: positive in Q2 2022.


Marginal Financial Stability & Operation Financial Efficiencies

  1. Planet 13 (PLNHF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: negative 
    • Chance of experiencing financial distress in the next 2 years: 36%,
    • EBITDA margin: increased from 0.5% in FY2021 to 3.1% in Q2 2022,
    • Interest expense growth: slowed to 2.0% in Q2 2022 and
    • Net income margin growth: remained negative in Q2 2022.


Mixed Financial Stability and Operational Financial Efficiencies

  1. Acreage (ACRDF/ACRHF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: negative
    • Chance of experiencing financial distress in the next 2 years: 73%,
    • EBITDA margin: increased from 0.0% in FY2021 to 13.5% in Q2 2022,
    • Interest expense growth: increased to 15.5% in Q2 2022 and
    • Net income margin growth: became negative in Q2 2022.
  2. Goodness Growth (GDNSF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: positive
    • Chance of experiencing financial distress in the next 2 years: +77%,
    • EBITDA margin: increased from -35.0% in FY2021 to 3.1% in Q2 2022,
    • Interest expense growth: increased to 16.1% in Q2 2022 and
    • Net income margin growth: became positive in Q2 2022.
  3. Cresco (CRLBF)
    • Net operational cash flow: negative
    • Net operational cash flow equity in Q2, 2022: negative
    • Chance of experiencing financial distress in the next 2 years: +74%,
    • EBITDA margin: remained unchanged at 15.5% in Q2 vs. FY2021,
    • Interest expense growth: increased to 1.1% in Q2 2022 and
    • Net income margin growth: became positive in Q2 2022.
  4.  Jushi (JUSHF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: negative
    • Chance of experiencing financial distress in the next 2 years: +77%,
    • EBITDA margin: data is unavailable and
    • Interest expense growth: slowed to 2.0% in Q2 2022
    • Net income margin growth: remained positive in Q2 2022.

Poorest Financial Stability and Operational Financial Efficiencies

  1. Ayr (AYRWF)
    • Net operational cash flow: negative
    • Net operational cash flow in Q2, 2022: positive
    • Chance of experiencing financial distress in the next 2 years: +73%,
    • EBITDA margin: remained unchanged at 3.1% in Q2 vs. FY2021,
    • Interest expense growth: increased to 9.7% in Q2 2022 and
    • Net income margin growth: remained negative in Q2 2022.
  2. Trulieve (TCNNF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: negative
    • Chance of experiencing financial distress in the next 2 years: +71%,
    • EBITDA margin: declined slightly from 29.9% in FY2021 to 28.1% in Q2 2022,
    • Interest expense growth: increased to 11.0% in Q2 2022 and
    • Net income margin growth: became negative in Q2 2022.
  3. Curaleaf (CURLF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: negative
    • Chance of experiencing financial distress in the next 2 years: 73%,
    • EBITDA margin: declined slightly from -16.0% in FY2021 to -14.6% in Q2 2022,
    • Interest expense growth: increased to 6.1% in Q2 2022 and
    • Net income margin growth: remained negative in Q2 2022.


Worst Financial Stability and Operational Financial Efficiencies

  1. Verano (VRNOF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: negative
    • Chance of experiencing financial distress in the next 2 years: 70%,
    • EBITDA margin: decreased from 27.2% in FY2021 to 14.9% in Q2 2022,
    • Interest expense growth: increased to 9.8% in Q2 2022 and
    • Net income margin growth: remained negative in Q2 2022.
  2. TerrAscend (TRSSF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: positive
    • Chance of experiencing financial distress in the next 2 years: +74%,
    • EBITDA margin: decreased substantially from +19.1% in FY2021 to -9.8% in Q2 2022
    • Interest expense growth: increased to 28.8% in Q2 2022 and
    • Net income margin growth: remained positive in Q2 2022.
  3. Ascend (AAWH)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: positive
    • Chance of experiencing financial distress in the next 2 years: +77%,
    • EBITDA margin: decreased from 13.1% in FY2021 to 8.3% in Q2 2022,
    • Interest expense growth: increased to 53.3% in Q2 2022 and
    • Net income margin growth: became positive in Q2 2022.
  4. Columbia Care (CCHWF)
    • Net operational cash flow: negative
    • Net operational cash flow growth in Q2, 2022: negative 
    • Chance of experiencing financial distress in the next 2 years: +73%,
    • EBITDA margin: declined from 3.3% in 2021 to -1.6% in Q2 2022 and
    • Interest expense growth: increased to 2.3% in Q2 2022 and
    • Net income margin growth: remained negative in Q2 2022.


In Summary

In Q2, 2022, only one company, Green Thumb,

  1. had a Positive Operating Cash Flow,
  2. was the least likely of any of its peers to encounter financial distress, and the possibility of going bankrupt, in the next 2 years (12%),
  3. was one of 9 companies in the index reporting positive earnings before interest expenses, income taxes, depreciation, and amortization (EBITDA),
  4. had the largest EBITDA margin (38.0%) of any of its peers
  5. was one of only 2 companies that had a reduction (10.3%) in the growth of its interest expenses (Jushi had a reduction of 2.0%),
  6. was one of only 6 companies that had growth in its net income margin 
  7. was one of only 3 companies (along with Jushi and TerrAscend) that experienced a continued growth in its net income margin from FY2021 through Q2 2022.


Conclusion

There you have it, the most in-depth comparative analysis of the financial health of the 13 largest pure-play vertically integrated American multi-state operators to be found anywhere. The above comparative financial analyses should help you immeasurably in determining whether or not to buy one of the above stocks and, if so, which one(s), but please do your own due diligence and avail yourself of a wide array of further analyses and commentary here before doing so. If you have any questions regarding the above article or comments to make on the topic you are encouraged to do so in the Comment section below.

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