Publicly-Trade US Cannabis Sector Financials (Most-Recent Quarter - as listed)

Full Disclosure: All graphics referenced in this report & commentary can be found on New Cannabis Ventures, managed by Alan Brochstein, CFA, who is one of the best sources for objective information and data on the cannabis industry as whole, with more emphasis placed on the US and Canadian markets, since the European market is still way behind in development.

I want to begin this report with a little background context so that readers can see more of where I'm coming from, personally. I was an early investor in the cannabis industry, first in Canada, and then later on, in the United States. I speculated in both the "Big 4" Canadian Cannabis companies (Canopy Growth, Aurora Cannabis, MedReleaf, and Cronos) as well in penny stocks (all of which went bust) in the sector.

One thing that was very apparent to me from the beginning, was the way that the Canadian companies were being financed. At least for the "Big 4," almost all financing was debt, usually at a pretty-high interest rate, since they could not obtain any assistance from the US-based banks, and were extremely geographically-limited (to just the Canadian market) at first. The debt levels the Canadian companies amassed were truly staggering. I invested in Canopy Growth back in 2018, around the time of recreational cannabis legalization at the federal level took place.

Canopy recently reported a near-$2 billion-dollar loss in the past 3 months. TWO BILLION DOLLARS LOST. Keep in mind, this is a Cannabis company, they produce a product that can be grown hydroponically, aeroponically, or just in the dirt as natural. In truth, cannabis, especially the wholesale plant, itself, is an agricultural commodity, much like tobacco, that is incredibly-cheap to grow, harvest and consume. The profit comes from the markup that the companies are forced to pay, to compensate for the illogical level of taxation being pushed.

Shifting focus to the US Cannabis market, things are developing at a much faster pace than North of the border. The US commercial cannabis market is dominated by a cartel similarly to Canada, except, they are referred to as the "Multi-State Operators," companies that have licenses to cultivate and sell cannabis in multiple states, where legally-permitted, to do so. The biggest players in the US market are as follows: Curaleaf, Trulieve, Green Thumb Industries, Cresco Labs, and Verano Holdings. They're not the biggest players solely because they are currently bringing in the highest revenue in the industry. They have dominant positions in most of the markets in which they operate.

Much like what took place within the Alcohol and Tobacco industries, there has been a fair amount of consolidation through M&A in the US cannabis space, but, without proper financial support from the banking system, will not be able to fulfill their potential within the current fragmented state-by-state legal framework concerning the plant.

One thing that you should know about those Big 5 players in the US market, is that not all are made equal. For example, Trulieve, which began in Florida, came to almost totally dominate the Floridian medical cannabis industry. They have the highest number of retail dispensaries in the state, and they still hold the lead over Curaleaf, despite lots of investment going into the retail sales side of the business. Trulieve began in Florida and only in the past year or so, had they really begun to expand their national footprint to acquire more licenses to cultivate and sell.

On the other hand, Curaleaf went out of its way, using tons of debt-financing, to buy up licenses wherever they could find them for sale. When I was an investor in Curaleaf a couple years ago, they were the national leader in cultivation licenses and retail licenses under one company umbrella.

I have to admit that since 2019, I have shifted my analytical focus towards the broader US and European stock markets, as a whole, rather than laser-focusing in on any one particular industry or sector.

If you have any questions at all about these figures, don't hesitate to leave a comment below, or, reach out to Alan Brochstein, I'm sure he would be happy to answer questions, since he is one of the foremost analysts for the sector. I personally have followed his work and kept up with his regular posts for a couple years, and I can say out of everywhere I have looked online, New Cannabis Ventures has some of the easiest-to-sort through stats on the legal cannabis industry in the US and Canada.

There is a very troubling trend within the revenue growth of the US cannabis companies. At the onset of public-trading status, most of the players were all investing in growth at any cost, often over-leveraging their balance sheets to an incredible level. Since they have no access to the public markets (all OTC-listed so they're off-limits to a lot of institutional money as well), debt-financing was the dominant method for fueling that growth.

Take one look at the top-5 revenue-producing US cannabis companies, and what do you see?

Flat-lining growth. Month-over-month, quarter-over-quarter. Why? Because many of the states with mature medical cannabis industries that have been in business for years are saturated by the commercial growers and retailers. Where does growth come from for an industry that remains federally-prohibited from accessing most traditional financial services? It comes from new markets coming online. This is also an incredibly slow and drawn-out process, as anyone in Massachusetts or Arkansas can tell you, it doesn't actually matter WHEN a state government recognizes the change in law, it still takes years for the individual states to get their act together and authorize the start of cultivation and sales.

Arkansas took more than 2 years after approving a medical cannabis ballot initiative to begin sales in retail stores. The fact that there is such a long delay between approval and the beginning of sales (and introducing new cash-flow to the companies involved) means that they don't get to even realize the revenue they make from their licenses until months after sales begin. So there's always a lag between sales and realizing the revenue on their balance sheets. With interest rates into the double-digits with payoff dates within 7 years, the US Multi-State Operators are racing against the clock in an attempt to scale up their business to maximize revenue as quickly as possible to prop up their bottom lines before their lenders come calling for their loans to be paid off.

The following statistics are sourced from Yahoo Finance's listings for the individual companies' balance sheets as well as traditional valuation metrics as of the most recent quarter of results for each company (just for reference - not all are equal and everyone should always do their own research, VERIFY what I reference, and if anything is wrong, feel free to comment and reach out!)

Company Name (US-listed OTC stock ticker & share price as of market close on Friday, August 12th, 2022) - Market Capitalization

*Curaleaf ($CURLF $6.05) - $4.26B MktCap / 2.39x Book Value / $337.6M Total Rev / $187.12M Cash vs. $988.83M Debt w/ $56.78M in Operating Cash Flow (ttm = trailing 12 months)

*Trulieve ($TCNNF $13.15) - $49.33B MktCap / 23.03x Book Value / $318.3M Total Rev / $181.42M Cash vs. $960.55M Debt w/ -$45.78M in Operating Cash Flow (ttm)

*Green Thumb Industries ($GTBIF $11.09) - $2.59B MktCap / 1.51x Book Value / $254.3M Total Rev / $145.28M Cash vs. $512.59M Debt w/ $123.67M Operating Cash Flow (ttm)

*Cresco Labs ($CRLBF $3.48) - $1.04B MktCap / 1.44x Book Value / $214.4M Total Rev / $179.32M Cash vs. $640.52M Debt w/ -$1.88M Operating Cash Flow (ttm)

*Verano Holdings ($VRNOF $5.47) - $1.67B MktCap / 1.14x Book Value / $202.2M Total Rev / $139.64M Cash vs. $453.13M Deb w/ $190.82M Operating Cash Flow (ttm)

To bring this report to a close, I want you to take note of what the actual numbers are saying. First, and most importantly, none of the Big 5 are holding less than $450 million in debt, that's A LOT of debt when the operating cash flow is so low in comparison. Without diving too much into when the debt is owed, just know that the interest rates are all at the high-single or low-double-digit % levels. With lending rates way higher now than they were 3-4 years ago when these companies were really trying to scale up and takeoff, refinancing isn't going to be as easy.

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