Analysis: Cannabis MSOs could borrow nearly $2 billion – if they want to

Did you miss the webinar “Women Leaders in Cannabis: Shattering the Grass Ceiling?” Head to MJBiz YouTube to watch it now!

Chart showing incremental debt and buyback ability of cannabis companies
Image of Frank Colombo
Frank Colombo

The nation’s largest marijuana multistate operators collectively could tap into nearly $2 billion worth of debt – should any want to borrow money to expand capacity, make acquisitions or buy back stock.

This finding underscores our previous assertion that the major MSOs are in reasonably good shape to withstand the current tumultuous economic environment – one where rising inflation and interest rates are fanning fears that the economy might be headed toward a recession.

Stock prices, meanwhile, have swooned, making it more difficult for cannabis companies to issue shares to raise money.

The lower stock prices, however, make it more attractive for the MSOs to buy back their own shares if they have available funding from other sources, such as debt financing.

Let’s dig into the numbers.

Strong cash positions

In the case of the big MSOs, their cash positions are strong. And they are expected to be free cash-flow positive in 2023.

Our conservative calculations indicate that the group of 12 companies shown in the chart above have an aggregate of about $1.9 billion of untapped debt capacity.

We wanted to take an extra conservative view of the MSOs’ ability to raise additional funding through debt financing in our analysis here.

We looked at the 12 MSOs with more than $300 million in market capitalization.

We calculated the incremental, or additional, debt capacity of each company based on consensus analyst estimates of EBITDA, tax expenses and capital spending.

We calculated the free cash flow available to pay interest expense on debt from these.

Are you a social equity cannabis license holder or applicant?

The MJBizCon team is now accepting 2023 Social Equity Scholarship Program applications.

The mission of this program is to provide social equity cannabis license holders or applicants access to the #1 global cannabis industry conference + tradeshow in Las Vegas.

Who can apply?

  • Students currently enrolled in a cannabis-related program at an accredited university or college.
  • Cannabis executives at licensed social equity cultivation, extraction/processing, retail, manufacturing/brand businesses (or awaiting application approval).

Don’t miss out on this potentially life-changing opportunity.

Apply to attend MJBizCon today – The application period will close on July 24!

We then took this free cash flow and divided it by a desired interest-coverage ratio to calculate the amount of interest expense that each company could pay.

The interest-coverage ratio determines how easily a company can pay interest on its outstanding debt.

We used two times coverage for this exercise, recognizing that this is conservative for an industry such as cannabis, which is growing and relatively recession-resistant.

We then took this interest expense and divided it by an estimate of a reasonable interest rate for this group of companies.

We used 12% as a conservative number, recognizing that a number of the companies on our list borrowed at less than 10% rates in 2021.

Untapped debt capacity

The resulting figures gave us the total debt that we believe the company’s cash flow would currently justify – in other words, that $1.9 billion of untapped debt capacity.

Finally, from this number, we subtracted each company’s net debt (debt minus cash) to arrive at the additional debt capacity for each company.

The chart above shows the results of this exercise.

Note that the incremental debt for several companies, including Jushi Holdings (CSE: JUSH), 4Front Holdings (CSE: FFNT) and Ascend Wellness (CSE: AAWH) is negative, mainly because these companies have recently had extensive capital spending projects that will come online at the end of 2023 and in 2024.

As these projects come closer to fruition and are incorporated into analyst estimates, we expect the calculated debt capacity of these firms to expand.

On the other side of the spectrum, Planet 13 Holdings (CSE: PLTH), Green Thumb Industries (CSE:  GTII), Ayr Wellness (CSE: AYR.A) and Verano Holdings (CSE: VRNO) each appear to have more than $150 million of additional debt capacity.

The chart takes this analysis one step further.

Suppose a company has additional debt capacity based on its cash flow and its stock is trading below intrinsic value.

In that case, it is natural to consider the possibility of a stock buyback.

In addition to incremental debt capacity, the chart shows what percentage of the current market cap of each company could be repurchased using the firm’s additional debt capacity.

Four companies appear to have the ability to buy back more than 10% of their shares: Planet 13, Green Thumb, Ayr and Verano.

Note that, based on these figures, both Ayr and Planet 13 appear to be able to do substantial recapitalization transactions. Investors should note this in their valuation calculations.

In the current unsettled economic environment, however, we don’t expect many of these firms to originate stock-buyback programs.

But at current prices, if you are confident in your cash flows, it certainly has to be tempting.

Frank Colombo is director of data analytics at Viridian Capital Advisors, a New York-based cannabis capital, M&A and strategic advisory firm. He can be reached at

His previous analysis is available here.

To be considered for publication as a guest columnist, please submit your request here.