Thursday , 18 August 2022

Operating Cash Flow: Which Cannabis Company Is Best – and Why?

Numbers on a financial statement have different degrees of importance at different times and, for cannabis companies, operating cash flow is currently the most important – the basic indicator that a company is able to bring in more cash than it expends, and a precursor to net income – so this article compares the operating cash flow of the 8 largest cannabis companies by market capitalization, with each other.

The Importance of Cash Flow

Without positive cash flow — more money coming in than going out — a business doesn’t survive. Very simply, cash flow is the best measure of a company’s financial and operational health so it’s important to compare cannabis companies on that metric.

Kinds of Cash Flow

There are three kinds of cash flow (as defined by Investopedia):

  1. Investing cash flow – The amount of money generated or spent on investing activities such as purchase or sale of property, plant, and equipment, or purchase or sale of securities as investments.
  2. Financing cash flow – Money used to fund a company, such as issued debt, equity, or dividends.
  3. Operating cash flow – Money involved directly with the production and sale of goods from ordinary operations. In other words, money coming in through sales minus operating expenses.

This article focuses on operating cash flow, which is the one that most closely reflects the health of a company’s ongoing operations, as opposed to free cash flow, which is cash flow minus capital expenditures. Including the unusually high capital expenditures of cannabis companies at present would obscure the underlying operating performance.

Operating Cash Flow

The table below shows the operating cash flow of eight cannabis companies as opposed to net income for showing the health of a company because income includes many non-cash lines, like depreciation, goodwill, stock-based compensation and inventory changes, which may have a minimal effect on operations.

In the table, although Green Thumb appears in second place behind Verano, they should be considered number one as Verano’s cash flow is inflated because they have elected to defer some income taxes which they view as a low interest loan from the government. For 2021, this amounted to $108 million, which for comparison purposes must be subtracted from cash flow. With the subtraction, Verano still performed substantially better than all the other competition except Green Thumb. In fact, two of the other companies with positive cash flow in 2021, Trulieve and Cresco, would have been negative if their smaller deferred taxes were considered. Green Thumb is current on taxes.

Operating Cash Flow 2019 2020 2021 TTM
Curaleaf Holdings (OTCPK:CURLF) -38 12 -34 29
Trulieve Cannabis (OTCQX:TCNNF) 19 100 13 -1
Green Thumb Industries (OTCQX:GTBIF) -18 96 132 148
Cresco Labs (OTCQX:CRLBF) -25 -8 14 -2
Verano Holdings (OTCQX:VRNOF) -7 72 181 210
Ayr Wellness(OTCQX:AYRWF) 4 35 -28 -29
Ascend Wellness (OTCQX:AAWH) -41 -6 -42 -44
TerrAscend Corp.(OTCQX:TRSSF) -40 -37 -32 -56
Source

Conclusion

Green Thumb is far above most major cannabis companies in operating cash flow and at the top in net income and, based on three years of data, Green Thumb is on a positive trend on these important measures, suggesting that its out-performance will continue.

The above article has been sourced in large part from an article by Ted Waller and has been edited, paraphrased, and abridged by 68% (from 1502 words to 480 words) to provide you with a faster and easier read. Mr. Waller is being compensated by Seeking Alpha for the article based on the number of views of his article posted there so you are encouraged to read his all-encompassing article as linked above. Also, note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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