Week 21

 Update for Cannabis Industry between April 6th and April 10th.

I decided to look into publicly traded companies involved in the production and manufacturing of cannabis.

What I found was quite surprising.

Two companies stood out immediately due to their extremely high-risk leverage profiles: Tilray Brands and Canopy Growth. Both report highly negative Debt/EBITDA ratios, at approximately -677% and -333%, respectively.

At first glance, these numbers may seem confusing. However, the explanation is straightforward: both companies have negative EBITDA. When earnings are negative, traditional leverage ratios become less meaningful, but also more concerning. Rather than signaling low debt, these figures suggest that the companies are not currently generating enough operating income to support their debt levels. This can often indicate financial stress or an ongoing restructuring phase.

In such cases, it becomes more relevant to shift the focus toward cash flow. Specifically, whether these companies can realistically meet their interest and principal obligations. Currently, Tilray Brands is paying interest rates in the range of 6 - 8%, while Canopy Growth faces a wider range of roughly 6 - 14%, suggesting higher perceived risk from lenders. Their long-term debt stands at approximately $184M and $225M, respectively.

On the more stable side, Village Farms International presents a more moderate risk profile, with a Debt/EBITDA ratio of around 76%. This level is generally considered manageable, assuming earnings remain stable. The company carries about $39.5M in debt, with interest rates ranging from 4.8% to 7.5%.

From a market perspective, Tilray Brands remains a dominant player, accounting for roughly 21% of Canadian cannabis sales, while Village Farms International holds about 13%. Still a significant share and indicative of a strong competitive position.

Looking at more aggressive leverage strategies, Decibel Cannabis Company, Cannara Biotech and Auxly Cannabis Group fall into a higher-risk category, with Debt/EBITDA ratios of approximately 176%, 105%, and 106%, respectively. These companies also have smaller market shares, generally around 5%, with Auxly Cannabis Group slightly higher at about 8%.

Interestingly, borrowing costs vary across this group. Decibel Cannabis Company benefits from relatively low interest rates at around 4.75%, while Cannara Biotech pays approximately 5.31%. Auxly Cannabis Group shows a much wider range, from 5.36% up to 16.54%, which may indicate differing credit conditions or higher-risk financing structures.

Another interesting observation is that some companies rely less on traditional debt and more on lease liabilities. For example, SNDL Inc. holds approximately $134.5M in lease obligations, while Tilray Brands also carries a significant lease balance of around $82M. When combining both debt and leases, it becomes clear that Tilray Brands is among the most highly leveraged companies in the group.

One company that stood out in a different way is Organigram Holdings. Despite holding roughly 14% of the Canadian cannabis market, it carries almost no long-term debt and minimal lease liabilities totaling only about $7.5M. This is unusually low for a company of its size.

One possible explanation is that Organigram Holdings is currently focused on stabilizing operations, especially if profitability remains under pressure. However, low leverage can also be a strategic advantage, giving the company more flexibility compared to its peers.

Overall, this analysis highlights an important takeaway: not all debt is equal, and in some cases, the absence of earnings is a bigger concern than the size of the debt itself.

In future posts, I will dive deeper into cash flow coverage and compare interest obligations to operating performance to better assess which of these companies are truly sustainable.