The post-election landscape raises uncertainty for cannabis MSOs, with investors hoping for potential relief from the new administration. Verano VRNOF, Green Thumb GTBIF, and Gold Flora GRAM show mixed results, balancing strategic gains with regulatory challenges. While full federal legalization remains a distant possibility, Pablo Zuanic, from Zuanic & Associates, suggests a gradual shift towards rescheduling cannabis to Schedule III, potentially extending into late 2025.

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Verano Holdings: Market Headwinds

Verano posted Q3 results reflecting a mixed performance, with $227 million in sales, marking a 5% sequential decline. The drop was partly attributed to seasonality and market pressures in key states like Florida. Despite acquiring assets from The Cannabist Company CBSTF, which were only partially reflected in Q3, Verano’s financial health is strained by a high debt burden—standing at 40% of the last twelve months (LTM) sales, and substantial tax liabilities of 32%. Adjusted EBITDA margins fell by 200 basis points to 30%, indicating pressure on profitability​.

The company remains Overweight in Zuanic’s ratings, but concerns about its exposure to the Florida market may hinder short-term recovery, particularly given the state’s rejection of adult-use legalization in the recent election. This has led to a 44% drop in Verano’s stock post-election, highlighting the vulnerability of Florida-dependent operators​.

Green Thumb Industries: Resilient But Cautious

Green Thumb reported a stronger Q3 performance, with $287 million in sales, up 2% sequentially. The company stands out with robust cash flow management, generating an adjusted operating cash flow of $139 million, representing 17% of sales.

With relatively low leverage—net debt at just 7% of LTM sales—and healthier adjusted EBITDA margins of 31%, Green Thumb appears well-positioned to navigate the current regulatory uncertainty.

In terms of financial leverage, Cresco Labs CRLBF carries the highest combined debt and tax liabilities at 80% of last twelve months (LTM) sales, followed closely by Curaleaf CURLF at 79% and Verano at 72%. Green Thumb, on the other hand, stands out with a low leverage ratio of 9% of LTM sales, bolstered by strong cash flow performance.

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Gold Flora: Expansion Amidst Market Challenges

Gold Flora, a California-focused operator, showcased significant operational improvements in Q3 2024. The company’s adjusted gross margins surged from 54% in Q1 to 65% in Q3, with EBITDA margins reaching 9%, a notable turnaround from -6% in the first half of the year. The brand’s strategic push into the vaping segment, particularly with its Gramlin line, has been met with strong market reception, becoming a top-10 brand in California.

However, according to Zuanic Gold Flora’s financial stability remains a concern. The company’s debt obligations have increased, with tax liabilities now at $44 million, up from $28 million at year-end 2023. A planned expansion of indoor cultivation capacity by 50% and new store openings are aimed at bolstering revenue growth.

Benchmarking Tier 1 MSOs: Financial Health

• EBITDA Margins: In Q3 2024, Trulieve led with a 34% EBITDA margin, followed by Green Thumb at 31%, and Verano at 30%, each down sequentially. Cresco held steady at 29%, while Curaleaf improved to 23%.
• Cash Flow Performance: Green Thumb excelled with an adjusted operating cash flow (OCF) of $139 million (17% of sales). Trulieve and Verano followed with $37 million (4%) and $30 million (5%), respectively. Curaleaf broke even at $4 million, while Cresco lagged at -$3 million.
• Valuation Comparisons: Green Thumb and Curaleaf trade at an EV-to-sales ratio of 2.2x. Trulieve is at 1.8x, with Cresco and Verano at 1.6x. For EV to EBITDA, Curaleaf leads at 10x, Green Thumb at 7x, and the rest between 5.2x and 5.5x.

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