Who Clears The Bar In Cannabis Markets

The dozen operators above $50 million in last-twelve-months adjusted EBITDA, based on company filings compiled by Lineage Merchant Partners and SSC Advisors, are Trulieve, Green Thumb Industries, Curaleaf, Verano, Cresco Labs, Ascend Wellness and TerrAscend in the United States, and Tilray, SNDL, Village Farms and Aurora in Canada. Vireo Growth belongs on the list on a pro-forma basis once its recently announced acquisitions are rolled in, which would make it the thirteenth name. Vireo itself now positions the combined business as the fourth-largest US cannabis company by revenue.

Move the threshold to $100 million and the list contracts to Trulieve, GTI, Curaleaf, Verano, Cresco, Ascend and Vireo. The Canadian names fall away entirely.

“Fifty million gets you in the conversation. A hundred million gets you investable,” says Seth Yakatan, an M&A advisor at Katan Associates, whose firm advises cannabis operators on capital raises and transactions.

“Below $50 million of EBITDA, an operator is one bad quarter from trouble,” explains Steven Ernest, head of originations at Chicago Atlantic, one of the sector’s largest non-bank lenders to plant-touching operators. “At $100 million, the same shock is survivable. Scale buys diversification across states and products, real debt service, and the runway to still be standing when federal reform re-rates the sector. I’m not underwriting upside. I'm underwriting who survives long enough to capture it.”

The seven companies above $100 million also account for the overwhelming majority of total U.S. public cannabis market capitalization. That is not a coincidence. Institutional funds typically cannot take meaningful positions in stocks that do not trade enough volume to support entry and exit, which means scale and liquidity end up correlated. The smaller names trade thinly, which keeps institutions out, which, in turn, keeps the trading thin.

It is a structural problem that does not resolve until the industry consolidates or until the largest names grow into something closer to consumer-staples scale. Neither is happening quickly.

Why EBITDA Isn't The Number It Looks Like

There is a second problem layered underneath the first. Adjusted EBITDA does not convert to cash in this industry the way it does in others.

Three reasons. Section 280E of the federal tax code, the rule that classified cannabis as a Schedule I substance for tax purposes, forced these companies to pay federal income taxes on gross profit rather than net income. That eats cash that does not show up in EBITDA. Cannabis is also capital-intensive, and most operators have financed growth through sale-leaseback structures that hit cash flow but get added back to EBITDA. And there is no standardized methodology for what goes into adjusted EBITDA. Every company defines it differently. Some are more aggressive than others.

“Adjusted EBITDA is a poor predictor of actual cash flow for any company, but particularly in the cannabis industry,” says Frank Colombo, managing director and chief credit officer of Sharpe Capital Partners, an institutional asset-based lending platform serving underserved specialty finance industries. “Investors should be considering these large unpaid taxes as disguised debt.”

Colombo adds that investors also need to scrutinize what companies are adding back into adjusted EBITDA. “They aren’t standard between companies and can hide large cash costs,” he explains. “Adjusted EBITDA is ubiquitous in cannabis earnings releases, but investors need to dig deeper to see how much actual cash flow these companies are generating.”

The result is that several companies that look healthy on EBITDA are negative on a normalized cash basis. Lineage’s data shows Ascend Wellness reported $13 million in operating cash flow over the last twelve months. Applying Lineage's methodology, which adjusts operating cash flow for the deferred 280E taxes these companies have been booking but not paying, the number flips to negative $43 million. Cresco Labs goes from $37 million reported to roughly negative on the same adjustment.

The full mechanics of 280E and why they create this gap were the subject of a piece I published last month, and they connect to the pricing compression that has been squeezing the same companies from the revenue side. Together, the two distortions explain why the cash that actually stays with these businesses is so much smaller than the headline profitability suggests.

Strip away 280E and adjusted EBITDA, and the cash that's left is what tells you which businesses can actually scale.

The Toggle Question

Medical cannabis was rescheduled to Schedule III effective April 28, 2026. Section 280E applies only to Schedule I and II substances, which removes its statutory basis for state-licensed medical operators on a forward-looking basis. Treasury and IRS guidance confirms relief applies from January 1, 2026 forward for qualifying medical operators, though final implementing guidance is still forthcoming. Adult-use cannabis remains in Schedule I.

Two questions remain unresolved. What happens to adult-use, and what happens to the pre-2026 uncertain tax positions, the 280E-related tax liabilities these companies have accrued but not paid since 2023?

The optimistic view, prevalent among M&A advisors and the operators themselves, is that roughly half of pre-2026 UTP gets forgiven and the rest gets negotiated into long-dated payment plans with the IRS. Adult-use rescheduling, in this view, follows medical within twelve to twenty-four months. The UTP exposures are substantial. Trulieve carries roughly $696 million in uncertain tax position liabilities as of Q1 2026. Curaleaf carries $439 million as of the same quarter, down from $531 million at the end of 2025. Several other operators sit in the high hundreds of millions. Publicly traded cannabis companies collectively owe the IRS approximately $1.6 billion in past-due 280E-related liabilities.

The skeptical view has firmer ground.

The Treasury’s April 23 press release did not mention retroactive relief. The accompanying guidance explicitly noted that any such relief would only be available for tax years in which the statute of limitations remains open. The IRS has historically refused retroactive amendments to prior-year returns based on changes in law. And on May 18, the Department of Justice sued TerrAscend in the US District Court for the District of New Jersey to claw back the $8.3 million 280E refund the company received in June 2024. The complaint argues the refund was “erroneous” because cannabis remained Schedule I when the tax year in question closed. The same June 2024 IRS bulletin TerrAscend cashed its refund against stated that operators filing amended returns for 280E relief were "not entitled to a refund or payment."

Green Thumb Industries is the one Tier 1 operator that has paid every dollar of its 280E taxes as they came due, rather than booking them to UTP. As GreenWave Advisors documented earlier this year, GTI has retained roughly 60% of its operating cash flow over the last six years after satisfying tax obligations. The rest of the Tier 1 group is below 50% on the same measure once unpaid 280E liabilities are accounted for. CEO Ben Kovler's stance across earnings calls has been to pay current taxes and preserve balance sheet flexibility rather than bet on retroactive relief. That position carries weight precisely because GTI has no incentive to lobby for forgiveness it does not need.

Even if the optimistic camp turns out to be right, the threshold math does not change much. The seven names that clear $100 million on the way in still clear it on the way out. The bar moves down, not up. What changes is how many additional names come up to meet it, and the answer is probably not many.

What Comes Next

The obvious resolution is consolidation. The industry has been talking about it for years, and as I reported in January, it has been happening, just not in public.

Traditional private equity still cannot touch cannabis at scale. U.S. banks still will not lend to plant-touching operators. The only acquisition currency that works is the acquirers' own stock, and most of those stocks trade at multiples that make acquisitions expensive. The seven companies above the line are the most likely consolidators of the ones below it, but they would be paying for the privilege.

Below the line, the smaller operators face a harder version of the same problem. They need to either grow into the threshold or find a buyer. Growing requires capital that is expensive and scarce. Selling requires the buyers to want to buy, and the buyers are mostly waiting for the legal picture to clarify.

Cannabis has spent a decade chasing scale. The data now shows how narrow institutional scale actually is: seven companies. The industry's reported profitability rests on an accounting convention that has been a poor proxy for cash in this sector, layered on a tax burden that may or may not lift. Schedule III could change the math. It will not change the count. The companies that clear the bar are the most likely consolidators of the ones that don't. The question is how long the runway lasts for everyone else.