OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
Capital Raises
Capital Raises Summary
Each week, Viridian publishes insights and analysis on completed capital raise transactions in the prior week, focusing on all equity and debt deals. Our analysis includes:
- Summary
- Outlook
- Best & Worst Perfromers
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YTD Analysis
Cannabis capital raises are off 64.7% YTD:
- Total Equity issuance is off 75.6%, and total debt issuance is down 47.8%.
- U.S. debt is down only 39.3%, while Canadian debt is down a more significant 75.6%.
- At 58.2% of total capital raised, debt remains the highest in history for comparable periods.
- Public companies accounted for 74.5% of total financing YTD, down from 79.6% in 2021.
- The graph below shows that U.S. activity dominated capital raises for the first forty-nine weeks of 2022, with 74.0% of all capital raised.
- International capital raises of $319.8M represented 7.7% of total capital raises, exceeding the previous record of 6.3% in 2019.
Market Commentary and Outlook
OUTLOOK
- Cannabis stock prices (measured by the MSOS ETF) were down 22.63% last week, the most significant one-week percentage decline since the ETF commenced trading in September 2020. The ETF was down an additional 11.9% in the first two trading days this week, as investors essentially gave up on the SAFE act in 2023.
- We are somewhat embarrassed to admit that we bought into a proposition that ordinarily makes us cringe- “things are different this time.” (second only to “we are from the government, and we are here to help”) Remind us never to try to handicap the probabilities of government action.
- So where does it leave us? There is still hope in some circles that the bill can be tacked onto the Omnibus Spending Bill if, indeed, that bill comes to a vote.
- SAFE would produce a meaningful lift in cannabis equities. Still, we believe the more important impacts will be indirect and take time to develop from whenever the legislation is finally passed. SAFE will likely encourage more financial institutions to provide custodial services for cannabis equities, increasing the liquidity of the stocks, promoting more trading volume, and enticing new investors. We believe this virtuous circle will eventually lead the exchanges to allow the uplisting of cannabis equities.
- The potential knock-on effects leading to uplisting strike us as the most significant benefit that the Tier One MSOs would get out of SAFE. They already have bank accounts and access to capital. They are prudently tightening their belts, reconsidering their capital budgets, and making strides in refinancing maturing debt.
- One might even argue that Tier Ones are better off without SAFE. The lack of banking more seriously impacts their smaller competitors and, along with the continuing capital crunch, may make these smaller players acquirable at better (read distressed) terms.
- The opposite is true for the smaller competitors: they would gain more directly from SAFE but benefit less from eventually uplisting. Increasingly, equity analysis will devolve into credit analysis for the Tier two and three competitors. Yes, we know they are cheap, but can they hold out through this environment?
This Week Sector Focus
The U.S. Cultivation & Retail sector has experienced a similar change in capital raise activity, although the components have changed significantly.
- Total capital raised is down 62.3%, but equity capital raised is down approximately 95.0%.
- Debt financing is down 30.0% YTD but accounts for about 93.5% of all capital raised; private companies raised 24.9% of it.
- 73.0% of total capital raises YTD were completed by public companies compared to 80.9% in 2021.
- In 2022, there have been no equity deals above $25M.
Capital Raises vs Stock Prices
Best and Worst Stock Performers
YTD Returns by Public Company Category
- Interestingly, Tier 3s, the category that stood most to gain from SAFE, actually gained one notch of improved ranking in terms of YTD returns. We chalk this up to illiquidity, which can be a blessing in a free-falling market like we saw this week.
Best and Worst Performers of the last week and YTD
- Top gainers this week are from three categories: 1) the dawned of the dead, including Nova Cannabis (NOVC: CSE), Fire & Flower (FAF: CSE), MedMen (MMEN: CSE), and Greenlane (GNLN: Nasdaq), all among the largest YTD losers; 2) Loan providers Chicago Atlantic (REFI: Nasdaq) and New Lake Capital (NLCP: OTCQX) both of which stand to gain from the failure of SAFE; and Vibe Growth (VIBE: CSE) which gained 40% last week on the news of a company share buyback, only to trade back down 29% over the last two days.
- Top losers included a selection of the largest and most liquid names in cannabis, including Canopy Growth (WEED: TSX), Ascend (AAWH: OTCQX), Green Thumb (GTII: CSE) and Curaleaf (CURA: CSE), all victims of their own liquidity.
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