Multi-State Operators (MSOs) like Trulieve, Curaleaf, Green Thumb Industries, and Verano had very positive Q1/24 results.
The sector remains undervalued, trading at an average 2024e EV/EBITDA of 8.8x compared to an analyst's base-case sector valuation of 11.8x.
According to the ATB analyst, as most companies have reached positive Free Cash Flow (FF) generation, investors could start valuing the sector based on FF multiples or yields, offering significant upside potential.
MSOs are trading at an attractive average 5.2% 2024e FCF yield.
With re-scheduling on the horizon, and states like Ohio – which just green lit adult use sales next month – will foster strong growth tailwinds churning cashflows higher.
However, a significant short interest across the sector is preventing the true value from being realized. This short interest presents an opportunity for investors who recognize the long-term potential of the industry.
Notably, call option activity has been spiking for weekly and monthly May 17th/May 24th strikes, indicating increasing interest and potential volatility in the near term.
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