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

Quick Links

YTD Analysis

Cannabis capital raises are off 66.4% YTD:

  • Total Equity issuance is off 75.6%, and total debt issuance is down 53.9%.
  • U.S. debt is down only 48.9%, while Canadian debt is down a more significant 76.0%.
  • At 58.3% 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 fifty weeks of 2022, with 73.9% 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 20.6% last week and 40.4% month-to-date and are now at their lows since the ETF commenced trading in September 2020.
  • The failure of the SAFE Act points out the differences of opinion that still exist regarding the path for cannabis legalization/descheduling. If SAFE+ ever had 60+ votes, we think it would have been presented as a standalone bill. The reason to package a bill inside some other “must pass” legislation is precisely because you don’t think you can get it passed on a standalone basis. So why not, in the face of polling numbers that suggest widespread public support? We see two reasons: One issue is that no legislator feels that his political career rests on his cannabis vote. It is simply not a strong enough issue yet to sway votes. As such, cannabis has become just another bargaining chip in the logrolling process rather than an essential standalone issue. It may be as simple as the Republicans did not want to give the Democrats a “win” in the lame-duck session and felt no particular political pressure to do so. Another critical reason is the “+” in SAFE+. Republicans seem willing to pass a banking reform bill along the lines of the original SAFE but are less inclined to go along with the various social equity issues that have been added to the bill. Threading the needle between having enough social equity to please the progressive wing of the Democratic party while keeping the Republicans onboard continues to be a stumbling block.
  • The failure of SAFE will not be felt uniformly. SAFE never benefitted the Tier one MSOs much, at least in the short run. They already have well-established banking relationships and access to capital. SAFE did nothing to cure their biggest problem, 280e, nor did it immediately enable uplisting. We think it would have eventually led to uplisting by encouraging the custody of cannabis stocks, increasing liquidity, and fostering the process of bringing in more institutional money. In the short run, we believe the lack of SAFE may be advantageous to the Tier ones as it increases the pressure on smaller companies to merge with larger, better-funded competitors. It allows Tier ones to continue to grow at the expense of smaller competitors. We frankly feel that this process will continue with or without SAFE. Cannabis is a capital-intensive commodity business that will inevitably have fewer and larger competitors.
  • Tier 2 and 3 MSOs/SSOs and smaller entities like the social equity entrants would have benefited much more from broader access to banking services, especially credit. Capital markets are currently inhospitable to these companies, especially those without hard collateral like real estate to borrow against. It reminds us of the old credit saying, “never lend money to someone who needs it.” Meanwhile, the equity markets are nearly closed for U.S. cultivation & retail sector companies. Many face significant upcoming liquidity pressures, especially in the states that have already seen commodification-savaged wholesale pricing.   We think of this as primarily a short-term liquidity issue rather than a long-term solvency issue. Many startups and smaller companies have solid business plans and good potential but may fail due to a lack of funding.    In an environment like we are facing, with a recession of unknown proportions approaching, credit analysis trumps valuation. And the main thing investors need to be concerned with is Liquidity. Does your investee have the capability to weather the storm?

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 67.1%, but equity capital raised is down approximately 96.3%.
  • Debt financing is down 44.4% YTD but accounts for about 95.1% of all capital raised; private companies raised 25.1% of it.
  • 72.8% of total capital raises YTD were completed by public companies compared to 83.2% 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 3s, the category that stood most to gain from SAFE, lost two notches of ranking in terms of YTD returns. Investors are rightfully concerned about the liquidity of smaller companies in the No SAFE capital crunch environment.

 

Best and Worst Performers of the last week and YTD

  • Top gainers this week are from three categories: 1) out-of-the-money option equities trading on pure volatility, a category which includes Stem Holdings (STMF: OTC), Unrivaled Brands (UNRV: OTC), MedMen (MMEN: CSE), and Auxly (XLY: CSE); 2) Capital providers AFC Gamma (AFCG: Nasdaq), New Lake Capital (NLCP: OTCQX), and Innovative Industrial Properties (IIPR: NYSE), all of which stand to gain from the failure of SAFE; and Nova Cannabis (NOVC: CSE), which was up strongly on record volume. We saw no news to account for the gain.
  • Top losers included AYR (AYR.A: CSE), Jushi (JUSHF: OTC), and Trulieve (TRUL: CSE).

This Chart is Only Available to Higher Tier Memberships

Please Purchase a Basic, Premium, or Enterprise membership to see more.

This Chart is Only Available to Higher Tier Memberships

Please Purchase a Basic, Premium, or Enterprise membership to see more.

Please login to your account to view data charts.