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The Viridian Chart of the Week on 8/27/23 demonstrated that cannabis is more capital-intensive than tobacco, alcohol, pharmaceuticals, or general consumer products. Cannabis measured 1.67x capital/sales. The industry has managed to reduce capital intensity slightly since then, and the group now measures 1.54x capital/sales.
The high capital intensity has severe implications for internally fundable growth. If, on average, it takes $1.54 of extra capital to get $1 of additional sales, with 30% EBITDA margins and high 280e taxes, it is clear that growth requires external financing. S3 will help but not eliminate this issue.
This week’s chart explores the differences between major MSOs in capital intensity and the implications for EBITDA margins and EBITDA/ Capital employed.
The green bars on the chart show each company’s March 2024 Capital employed (book equity+ book debt-cash) divided by its projected next twelve-month sales. Note the significant discrepancy between the least capital-intensive competitor, Jushi JUSHF vs. the most capital-intensive AYR Wellness AYRWF. Jushi has only $.80 of capital for each dollar of sales, whereas AYR has $2.33 of capital for each dollar of sales.
The orange line shows each company’s projected 2024 EBITDA. Higher capital intensity tends to correlate with higher EBITDA margins. This effect is probably due
