• Debt accounted for 80% of trailing 4-week capital raises. We expect this ratio to be volatile because of the limited capital raise activity but average above 50%. Several large MSOs, including TerrAscend (TER: CSE), Jushi (JUSH: CSE), and AYR (AYR.A: CSE), have significant refinancings to do based on their debt maturity schedules. Several smaller tier 2 and tier 3 companies have upcoming financing needs that we believe will spur an increase in debt financing.

       

The Week’s Largest Debt Raise:

• On November 15, 2022, Charlotte’s Web Holdings (CWEB: TSX)(CWBHF: OTC) announced the closing of a $56.7M Unsecured Convertible Debentures.
  • • The new convertible debentures have a 5% interest rate that steps down to 1.5% following the date that U.S. federal laws permit the use of CBD as an ingredient in food products or dietary supplements.
    • The notes mature on November 14, 2029, and are convertible at approximately $1.51 per share (a premium of 131.6%)
    • The notes were purchased by tobacco giant BAT and are convertible into approximately 19.9% of the outstanding common stock.
    • The high premium reduces the value of the conversion option embedded in the convertible notes. Accordingly, the effective cost of the notes is only 5.52%. Although CWEB ranks as the top credit among the 12 Hemp companies in our database with market caps between $10M and $100M, its credit quality does not merit such a low effective cost. The implied credit support of BAT and interest in acquiring the company at a future date justifies the rate.