280E isn’t killing all cannabis companies

While the tax relief may be a boon, it’s not a crucial part of the sector’s survival.

One of the top benefits for the U.S. cannabis industry from the hotly anticipated rescheduling move by the Biden administration this year would be federal tax relief, with the potential for tens of millions of dollars in savings for individual companies. Some analysts have long suggested that would be a game-changer for the industry.

But a new report this week from Viridian Capital Advisors suggests that while such tax relief may be a boon, it’s not a crucial part of the sector’s survival, based on free cash flow generated by several leading public cannabis companies last year.

Viridian cited cash flows produced by some multistate operators, including:

“The strength of these companies belies the pervasive claim that the industry cannot survive without 280E relief,” Viridian wrote in its analysis.

The firm compared the trio’s – and that of other MSOs – cash reserves to free cash flow generated. What it found was that these three in particular “do not need rescheduling as they are doing well in the current environment.”

“They can buy back stock, reduce debt, and fund capital spending. One could argue that the current climate gives them a competitive edge as they have capital flexibility while their competitors do not,” Viridian wrote.

Green Thumb, for instance, reported $225 million of free cash flow for all of 2023, while Trulieve reported $161 million, and Verano had $73 million. Green Thumb also had $162 million in the bank at the end of the year, Trulieve had $208 million, and Verano had $174 million.

Viridian’s analysis also concluded that several other MSOs “have modest free cash flow” and “appear to be stable in the current environment but are constrained in their capital spending and would be able to grow more if 280E was eliminated.”

Companies in that situation include:

Curaleaf Holdings Inc. (CURA:CA) (TSX: CURA) (OTCQX: CURLF)
Cresco Labs (CSE:CL) (OTCQX:CRLBF) (FSE: 6CQ)
Ayr Wellness (CSE: AYR.A) (OTCQX: AYRWF)
Ascend Wellness Holdings (CSE: AAWH.U) (OTCQX: AAWH)
Glass House Brands (GLAS.A.U:CA) (CBOE CA: GLAS.WT.U) (OTCQX: GLASF) (OTCQX: GHBWF)
TerrAscend Corp. (TSND:CA) (OTCQX: TSNDF)
Schwazze (OTCQX: SHWZ)

Three other MSOs are struggling mightily and may not be able to pay off their existing debts even with 280E relief.

Those include:

The Cannabist Company Holdings (NEO: CBST) (OTCQX: CBSTF) (FSE: 3LP)
Jushi Holdings (CSE: JUSH) (OTCQX: JUSHF)
4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF)

Those three each “have more significant issues,” Viridian wrote.

“Each is negative free cash flow before debt maturities, and all three have meaningful maturities in 2024,” Viridian wrote. “Rescheduling will help them; however, each has more leverage than is sustainable even in a post-280E environment. They possess significant optionality concerning state developments, and positive developments in Pennsylvania, Florida, and Virginia will be critical to their ongoing success.”

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