OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
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Chart of the Week
Chart of the Week
The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from that week’s Deal Tracker that we believe are impactful for investors, companies and acquirers.
Week ended 12/30/2022
The Cost of Debt for U.S. Cultivation & Retail Companies is Increasing
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- Debt has represented approximately 94% of all capital raised by U.S. Cultivation & Retail in 2022, significantly greater than in any previous year in cannabis history.
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- Equity issuance for cultivators has come to a virtual halt, with less than $80M of equity raised in 2022 compared to approximately $2.0B in 2021. Companies are reluctant to issue equity at multi-year lows, and the end-of-year crash has shell-shocked investors.
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- The graph shows U.S. Cultivation & Retail sector debt financing and average effective costs considering the impact of conversion features and warrants.
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- Banks and other institutional investors are continuing to tiptoe into cannabis and occasionally offering eye-popping rates for top-tier companies. A good example is the twin transactions closed by Trulieve (TRUL: CSE) this week at below 8% rates.
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- Credit has also been available at reasonable rates for smaller companies with excellent credit quality and attractive collateral. Vext Science (VEXT: CSE) and Body and Mind (BAMM: CSE) closed deals with effective costs in the 11.25% range.
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- Companies with high leverage or perceived liquidity are receiving less hospitable treatment. Jushi (JUSHF: OTC) recently priced a deal with 50% warrant coverage and an effective cost of around 15.25%.
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- On average, rates have risen sharply. After dropping over 500bp between 2020 and the second half of 2021, rates are up nearly 300bp.
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- We expect average effective rates to continue rising and the debt markets to become increasingly credit-conscious as a likely recession draws nearer.
