Cannabis MSO Earnings Analysis

Analyst are expecting revenues for the large MSOs to continue to decline, causing a sharp reduction in their EBITDA estimates for Curaleaf (CSE: CURA) and TerrAscend (CSE: TER) and moderate decreases for AYR (CSE: AYR.A), Cresco (CSE: CL), and Jushi (CSE: JUSHF). Estimates for Columbia Care (CSE: CCHW) and GTI (CSE: GTII) are virtually unchanged, and Verano and Trulieve estimates are higher.

Earnings revisions have had little impact on relative performance. Curaleaf, with the most significant downward revisions, actually outperformed Trulieve with the most significant upward revisions.

M&A activity had a significant impact on some of these revisions. Trulieve and Verano completed $1.5B and $630M, respectively, in acquisitions over the period. But even some major acquirers had their EBITDA revised downward sharply. For example, AYR completed $1.0B in acquisitions, and analysts have revised their 2022 EBITDA projections downward by 8%.

The missing link is margins.

All the companies, except for Curaleaf and TerrAscend, have higher 2022 revenue projections than they did a year ago. Still, every company except Verano (data not available) has lower EBITDA margin estimates for 2022 than they did a year ago. These lower margins more than offset higher projected revenues.

What happened to margin expectations?

Our guess is that the sell-side equity analysts were just a bit too optimistic and have been forced to rein in their expectations.

Episode 902 The #TalkingHedge looks at Viridian Capital Advisors’ report...
https://youtu.be/uR5WSUQ-YGA