Cannabis Investing: Debt vs Equity

Cannabis Investing: Debt vs Equity

There has been a significant shift in cannabis debt issuance from equity-linked debt to straight debt with no equity linkage. This shift reflects the industry’s growing maturity and profitability (at least in the U.S.)

In the early debt days of 2018, nearly all cannabis debt issues were convertibles, and many issues had additional attached warrants to achieve total coverages of over 100%.

As the U.S. MSOs became EBITDA positive in 2020, issuance of straight coupon debt began in earnest, led by the $300M Curaleaf deal in December 2020 and followed shortly after that by $100M and $120M deals by Cresco and TerrAscend, respectively. Most of the top MSOs, including Ascend, AYR, Cresco, Curaleaf, Jushi, TerrAscend, Trulieve, and Verano, have now completed straight coupon issues in $100M+ sizes at rates between 8% and 10%.

The ability of Acreage Holdings and Glass House Brands to issue debt with no or little equity linkage is somewhat more surprising but explainable.

The key is that in a credit market starving for yield, the Glass House issue is priced at 890 basis points over treasuries. Investors are being paid a sizable premium for taking cannabis risks, believed to be on par with a CCC rated bond.
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Show Notes:
The Great Cannabis Debt Shift
https://www.viridianca.com/chart2

Host:
Josh Kincaid, Capital Markets Analyst & host of your cannabis business podcast.
https://www.linkedin.com/in/joshkincaid/

Episode 863 The #TalkingHedge…
Your Cannabis Business Podcast.
​Covering cannabis products, reviews, business news, interviews, investments, events, and more.
https://www.theTalkingHedgepodcast.com

Music Info:
Song: Dark Trap Beats Hard Rap Instrumental | Gang | 2018Artist: LuxrayBeats

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Josh is not an investment adviser. The Talking Hedge is long gold and silver. Listeners should always speak to their personal financial advisers. This is only entertainment.