Smaller U.S. Cannabis Firms Gain Ground on Industry Giants Amid Stock Slumps

The valuations of smaller companies is nearly the same as for larger companies

Smaller U.S. cannabis companies are narrowing the valuation gap with larger peers as the industry struggles to boost tanking stock prices.

Viridian Capital Advisors compared the value of 22 U.S. cannabis cultivation and retail companies based on their expected earnings in 2023 and their liquidity levels.

The firm found that smaller companies with less than $200 million in market capitalization have similar values to larger companies, with a median multiple of 4.3x compared to 4.7x.

This is a significant change from two years ago when the valuation gap was much larger, according to Frank Colombo, director of data analytics at Viridian.

The change could stem from investors speculating on potential acquisitions, he noted, though the liquidity ratios of these smaller companies suggest that they may need financing soon.

“Possibly this group is being buoyed by takeover speculation,” Colombo wrote.

Colombo posited that even though half of the companies will need additional financing in the coming year, the market is not significantly discounting their value. Larger and more liquid companies are not receiving as much of a premium as expected, given their lower financing needs.

The main question for MSOs is how they can increase the value of their stocks, given the challenging landscape.

Factors such as declining wholesale prices and rising costs due to inflation continue to compress margins, while the capital markets remain tight, making it difficult to secure funding to expand.

And despite industry challenges, institutional investors have been keeping an eye on the cannabis industry, though the illiquidity of weed stocks has deterred significant players from getting involved.

One potential avenue for enhancing stock value is to increase liquidity, Viridian said.

Viridian noted TerrAscend Corp.‘s (CSE: TER) (OTCQX: TRSSF) announcement on Tuesday that it applied to list its shares on the TSX, with the creation of a separate holding company likely serving as the vehicle for the major exchange upgrade.

“Imagine the impact on even the largest MSO if an institutional investor wanted to buy or sell $100 million of stock,” Colombo wrote. “The TSX has multiples of the CSE’s trading volume, which will potentially get more institutions to invest in cannabis.”

That type of exposure to a senior exchange like the TSX could increase stock liquidity, potentially attracting even more institutional investors to the industry.

TSX has previously stated that issuers with business activities violating U.S. federal law regarding marijuana are not compliant with listing requirements – though the TMX Group, which operates the TSX, told Bloomberg in December that it had begun warming up to the idea of Canadian giant Canopy Growth Corp.‘s (TSX: WEED) (Nasdaq: CGC) plans to consolidate under a U.S. umbrella and finally absorb its pending U.S.-based deals.

“Despite the allure of uplisting, the process seems costly and potentially fraught with unintended consequences,” Viridian wrote.

For example, it could impact the attractiveness of the company’s stock as acquisition currency or make the company less attractive as an acquisition target. Additionally, there may be accounting or tax implications to consider.

“It’s safe to say that only large companies are likely to burn the lawyer’s time to attempt this move soon,” Colombo said.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at

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