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 to a multi-year low. Only $5.9M has closed through the first four weeks of the year compared to $248.0M last year.
- Public companies have raised 56.7% of total capital YTD.
Market Commentary and Outlook
VIRIDIAN INSIGHTS
- This week’s MariMed (MRMD: CSE) debt deal is a bellwether transaction for 2023. It shows that creditworthy companies can still find debt financing, albeit at much higher costs than last year. The 30% warrant coverage increased the returns to eye-catching levels, but debt is the only game in town, given the moribund equity market. It is a win/win deal for both MariMed and Chicago Atlantic and is optimistic for the market. High-return projects can find capital even in today’s market.
- We are hearing more talk of groups assembling pockets of capital to pursue the acquisition of distressed assets. Much of this is focused on California, but opportunities abound in other developed markets that have been the chief victims of price compression.
- California appears to be finally catching a break. Decreased licensed capacity of around 15%, horrific weather, and an increased number of stores seem to be firming wholesale prices. Now we will see how much of the gains are given back at retail to compete with the legacy market. We are hopeful but mindful that significant overcapacity still exists in the market, a situation unlikely to be corrected before interstate commerce. Interstate commerce hit the news this week, but we still find it hard to take seriously. After all, which state wants to be the counterparty and allow cheap California weed to decimate its local industry?
- The 3-month vs. 10-year treasury spread is still close to the most inverted since 1981, at negative 117bp (126bp last week). This inversion has successfully predicted the previous five recessions, and we don’t think it will miss this time either. The degree to which the premium end of cannabis holds up in the face of a recession is the big unknown. We don’t doubt that people will continue to smoke weed in the recession, but to what degree do they downscale into more affordable SKUs?
This Week Sector Focus
The U.S. Cultivation & Retail sector capital raises are down 71.6% YTD, but equity capital raised is down approximately 96.3%:
- Debt financing is down 50.6% YTD but accounts for about 94.0% of all capital raised; private companies raised 8.7% of it.
- 89.3% of total capital raises YTD were completed by public companies compared to 88.4% 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
- Tier 1 MSOs continue to be the only category with negative YTD returns. The sector was weighed down this week by abysmal performances by Cresco (CL: CSE), Columbia Care (CCHWF: OTC), and TerrAscend (TER: CSE), all down between 8.5-10% on the week.
Best and Worst Performers of the last week and YTD
- Several of this week’s top gainers, including Auxly (XLY: CSE), Slang (SLNG: CSE), Fire & Flower (FAF: CSE), and Tilt (TILT: CSE), were bounce-backs from the loser list last week. The volatility is extreme, with several of these names up 10-20% this week after being down similar amounts last week.
- Lowell Farms (LOWL: CSE) repeats on the loser list, down 14.4% this week after a decline of 28% last week. The longer things go on without any news on the company, the more negative the market assumes the outcome will be. The reasoning is that everyone knows the company is for sale, and if there was buy-side interest, wouldn’t we have heard something by now? The argument is a bit too simplistic, but we have heard it from several respected sources this week.
- We are happy to report that our fears of contagion in the cannabis lender sector have proved unfounded. IIPR, AFC Gamma, NewLake Capital, and Chicago Atlantic all performed in the context of the market this week. The ability to book transactions like this week’s Chicago Atlantic/ MariMed deal is undoubtedly positive for the sector’s ability to raise funds.
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