OUR 9TH YEAR OF PROVIDING PROPRIETARY CAPITAL MARKETS INTELLIGENCE ON THE CANNABIS / HEMP / PSYCHEDELIC SECTORS
Debt Capital Raises
Debt Transaction Chart
Viridian publishes weekly data and analysis on debt capital raises in the Cannabis/CBD/Psychedelic industries. This data includes information about the company issuing debt (public/private, state/country location), deal size, deal structure, pricing, warrants, and credit data.
Week ended 02/09/2024
Week ended 02/09/2024
Debt Commentary
Week ended 02/09/2024
- Debt accounted for 35% of trailing 8-week capital raises, down another eight points from last week. The ratio may stay lower than trend line levels if companies utilize favorable regulatory news to issue equity.
- The Week’s Most Significant Closed Debt Transactions
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- On February 7, 2024, AYR Wellness (AYR.A: CSE)(AYRWF: OTCQX) completed its previously announced plan of transactions to extend the maturity of its Senior Notes due 2024 and to raise an additional $40M in new capital.
- AYR exchanged its existing 12.50% senior secured notes due 12/10/24 for 13% senior secured notes of AYR Wellness Canada due 12/10/26. AYR additionally issued 29M shares of stock representing 24.9% of fully diluted capital to the holders. We were surprised that the company had to give away nearly 25% of its stock for only a two-year extension.
- AYR also issued $50M principal amount of the same notes to a backstop provider. The notes were issued at a 20% discount, and the lender also received 5.9M equity shares.
- The 13% coupon, 20% OID, and 5.9M shares produce an extraordinarily high effective rate of 67.37% on the new $40M investment. The calculation is straightforward. The 5.9M shares at closing was worth approximately $18.6M. So for roughly $21.4M (subtracting out the value of the stock given( the investor was able to buy $50M of 13% senior secured notes with a 2.8-year maturity! The deal was struck in early November when AYR’s stock was trading at only $1.23, so at that time, the investors were only anticipating around 35% returns, still an enormous return for a Tier 2 MSO.
- Meanwhile, identical notes are being offered for around 80-84% of par to yield a bit over 20%. What explains this disconnect? One factor is that $40M of new capital is scarce in the market. Equity prices may be up for the year, but we have not seen much in the way of new investors. While you may be able to buy a few million at 20% yields, it may be an entirely different story when you go to raise $40M!
- AYR is far from the worst credit in the MSO lineup. It ranks #16 out of 30 in the weekly Viridian Credit Tracker ranking of the top MSOs. The company is overleveraged, and the amendments and extensions discussed above did nothing to cure that issue, but it is well-positioned for positive catalysts in Pennsylvania and Florida.
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- On February 5, 2024, cbdMD, Inc. (YCBD: NYSE), best known for its cannabidiol brands such as Paw cannabidiol and cbdMD botanicals, closed on a senior secured original issue discount convertible promissory note for gross proceeds of $1.25M.
- Proceeds will fund the national rollout of the company’s new ATRx Labs functional mushrooms and general working capital.
- The notes have an 18-month maturity, carry an 8% coupon, and were issued with an original issue discount of 20%
- The notes are convertible at $.0865 (a 7.6% discount to the share price at closing.)
- The short maturity, 20% OID, and discount conversion option give the issue a 49.75% effective yield.
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Week ended 02/09/2024
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Weekly Credit Tracker
Each week, Viridian highlights a specific industry sector and provides a deep dive into credit metrics and comparable company credit rankings for public companies operating in that sector. Credit ratings are not currently available for public cannabis companies leaving companies, lenders, and investors with a gap of information. The Viridian Cannabis Credit Tracker fills this gap. The model uses 11 market and financial statement variables to discern 4 key credit factors: Liquidity, Leverage, Profitability, and Size, to provide credit/liquidity analysis for over 370 public Cannabis/Hemp companies.
- Week ended 02/09/2024
This week’s credit tracker focuses on the 7 Canadian Cultivation & Retail sector companies with market caps between $50M and $500M in the Viridian Value Tracker database in order to make the case that Auxly had a good reason to sell assets, even at prices significantly below its cost: The firm is over levered and needs to sell assets to reduce debt. The Viridian Credit tracker ranking system shows Auxly near the bottom of the peer group in terms of credit quality.
- Week ended 02/09/2024
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Additional content is available to Premium and Enterprise users. Please purchase a higher tier membership to see more.
This Chart is Only Available to Higher Tier Memberships
Please Purchase a Premium or Enterprise membership to see more.
Viridian publishes weekly insights on debt capital raises in the Cannabis/CBD/Psychedelic industries. These insights typically highlight the most interesting/meaningful debt transactions of that week, and commentary on market conditions, debt deal structures, and lenders.