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Recent news from the Drug Enforcement Administration scheduled Many cannabis companies were on edge when an administrative hearing was scheduled for Dec. 2, to “consider different expert opinions regarding the rescheduling cannabis to schedule III”.

In a recent report, Viridian Capital Advisors stated that “the cannabis equity market lurched downward violently on the news” as it clearly pushed back the issuance of the final rulemaking until after the election or possibly Spring 2025. “The MSOS ETF “Friday, August 30, closed down 11.61 % to $6.32.”

Despite this knee-jerk reaction, the firm is cautiously optimistic. “We believe that last week’s panic over the Florida legalization initiative was overblown. We are encouraged by Trump’s weekend comments supporting cannabis regulatory/legal reform and Florida’s legalization initiative, in particular.”

It could, however, subject cannabis firms to a second tax year under the 280E Provision.

This would be true, if you take into account the Internal Revenue Service’s announcement in July that all marijuana producers were required to register with them. The 280E will remain on your account If the potential rescheduling is not completed.

“In September 2023 we estimated that the 10 largest companies would save $700 million per year from (a schedule II ruling). These companies have a combined market cap of approximately $11 billion. Accordingly, a delay of one year in the implementation (of a schedule III ruling), should be worth about 6% of market cap.”

Financial resilience

The resilience and growth of the cannabis capital market is a key factor in Viridian’s position.

Gold Flora Corp., (OTC: GRAM), secured the only notable debt raising this week. The company received $7.15 from a senior loan facility. Viridian’s credit report ranks Gold Flora near bottom of its peer group despite the new capital.

“GRAM ranks in this group at 9/10, in a rather tough company with #8 Red White & Bloom CSE: RWB and #10 Acreage OTCQX: ACRDF,” Viridian stated. “GRAM’s ranking is heavily influenced because of its 8/10 leverage rating, driven by total liabilities compared to market cap at 9.87x.”

Capital raises to date totaled $1.6billion, an increase of 4.2% compared to the same period in 2023. This growth is despite a change in the debt to equity ratio of capital raised.

Viridian noted that “Debt, as a proportion of capital raised, dropped to 51.3% in comparison to 63.1% the year before on a global basis.” “The U.S. defied this trend, with 61.9% capital raised in debt as opposed to 55.1% by 2023.”

Viridian highlighted some of the more creative ways that companies are utilizing to finance their businesses in a typically capital-constrained industry, such as Gold Flora’s loan structure which includes additional drawbacks.

“The initial draw amortizes across 53 months and we calculated a (internal return rate) of 11.68%, which is surprisingly low, even when compared to its one-year maturity,” Viridian wrote.

Overall, Viridian concluded, “at current levels,” that the U.S. Cannabis industry – led MSOs – still has “enormous potential upside” for investors.