Cannabis Corner: US Cannabis Valuations Continue to Decline, As Does the Broader

uS CaNNaBiS valuaTiONS CONTiNuE TO DECliNE, aS DOES ThE BROaDER MaRkET

Post-pandemic new issues have arisen for the sector, inflationary pressure on overall consumer spending, multi-state wholesale pricing declines, a mess in the overall California landscape and a scarce number of investors with a never-ending rising cost of capital. However, we are staying pot committed as the long-term growth prospects of the sector have never been better.

OvERALL mARKET TRENDS:

macro sales are still strong and gROWINg: Based on retail-level sales data, macro sector sales have experienced average month over month growth of between 1% and 2% so far in 2022. Canaccord Genuity estimates the total legal cannabis sales in the US are currently run rating at close to US$25B.

Rising Inflation and wholesale pricing declines

likely to remain: All operators throughout 2022 have been negatively impact that 40+ year high inflation has had on consumer spending habits. Most wholesale markets in the United States are continuing to experience price compression. In some instances, this is a result of general market saturation mainly in California and the overall impact of illicit sales in many states.

2022 yTD uS cannabis sales – top 13 markets

Cannabis valuation Comparable Matrix

Top 5 mSOs are well positioned amid a slowed

environment: The 5 largest MSOs are profitable, have access to capital and are still operating with relatively attractive gross margins of close to ~50% and adj. EBITDA contribution just under 25%.

Sector valuations are low and require federal

legislative change. Overall sector valuations are particularly sensitive to the prospect of legislation progressing at the Federal level. All participants in the industry must plan that the likelihood of cannabis becoming legalized or de-scheduled in the foreseeable future remains remote.

valuations are at all-time lows: Per Canaccord Genuity the average MSO currently trades at 4.4x its 2023 EV/EBITDA – over 70% lower from the sector highs of early 2021 and >50% below the multiples of more traditional CPG companies. Until the sector attracts more institutional capital or a change at the federal level, we believe valuations may still be susceptible to downward pressure. MSOs still have attractive risk/reward prospects, given that company fundamentals.

Seth Yakatan C-Level Corporate Finance Specialist • Instituted a turn around at Eaze since 2019 • Raised in excess of $300.0 million • Culminating in Eaze acquiring multi-state retail leader Green Dragon, creating nation’s largest MSO Delivery operation and biggest Californiaheadquartered MSO • Over the past eighteen years as a co-founder of Katan Associates (KAI), Seth has successfully structured and managed strategic alliances and deals, based on his insight and expertise in the US and Global Cannabis and Life Science sectors