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The Thriving State of Cannabis Finances: Profits, EBITDA, and Cash Flow from Operations

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As third-quarter earnings releases unfold, the performance of cannabis stocks is unfolding a promising narrative. The stories behind the numbers are rich and revealing. Let’s embark on an illuminating journey through the revenue, EBITDA, and the real star of the show: the Cash Flow from Operations (CFFO).

Revenue and EBITDA: A Brief Overview

Among the prominent MSOs that have reported, some misses and beats in revenue and EBITDA have been observed. Notably, Trulieve and Green Thumb stand out with substantial beats in revenue, while TerrAscend has shown an impressive 44.0% EBITDA beat, contrasting with Planet 13’s 81.8% miss.

Interestingly, the strong Q3 performance is attributed, in large part, to the burgeoning Maryland adult-use market, driving substantial sequential quarter revenue increases.

Surprisingly, there appears to be no significant correlation between revenue/EBITDA beats and stock price changes, offering an intriguing insight into market dynamics.

The Cash Flow from Operations Enigma

The most revealing aspect of the Q3 releases is the Cash Flow from Operations figures. The depiction of actual Q2:23 CFFO against consensus estimates and actual Q3:23 CFFO, adjusted for accrued taxes, generates noteworthy observations.

All but one company exhibited higher positive operating cash flows in Q3 than in Q2, surpassing consensus projections. This upward trend speaks volumes about the financial resilience of these companies.

Although expectations pointed towards tightened working capital due to reduced receivables and inventory as the driving force of cash flow, this turned out to be inaccurate for most companies. Only Curaleaf and Trulieve showcased cash flow from reduced receivables and inventory.

Delving deeper, the deferral of tax payments emerged as a significant cash flow driver, with certain companies heavily reliant on this mechanism to beat analyst estimates.

However, it’s crucial to differentiate between ongoing, repeatable cash flows and deferred payments leading to future outflows, underscoring the complex nature of operating cash flows.

Cannabis Finances: A Compelling Saga

The unforeseen tales within the cannabis financial landscape shed light on the industry’s remarkable resilience and adaptability. As investors navigate this intricate terrain, the emphasis on cash flow from operations rather than revenues or EBITDA becomes increasingly vital, demanding a keen understanding of the underlying dynamics.

Moreover, the intricate dance of financial numbers unveils a deeper narrative, instilling a renewed perspective on the cannabis market’s financial fortitude and strategic maneuvers.


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