• Debt accounted for 85% of trailing 4-week capital raises. We expect this ratio to be volatile because of the limited capital raise activity. With cannabis stocks trading at or near their 52-week lows, we expect debt to continue to account for more than 50% of capital raises. Since year-end, debt costs have significantly increased because of higher treasury rates and risk spreads. We expect continued increases in equity-linked structures.

The Week’s Largest Debt Raise:

• • On April 14, 2023, Canopy Growth Corporation (CGC: Nasdaq)(WEED: TSX), the second largest Canadian L.P. by market cap, agreed with a subsidiary of Constellation Brands to exchange C$100M (US$73.9) of its 4.25% unsecured notes due 2023 for an equal principal note due 12/31/24. Canopy paid all accrued interest on the 2023 notes as part of the refinancing.
  • The company announced its intention to create a new class of non-voting, non-participating shares into which it will negotiate to exchange C$100M of the new notes. Details of the exchange have not yet been announced, but it will be interesting to see what value will be placed on the unsecured 4.25% notes.
  • The Viridian Credit Tracker model ranks Canopy as the thirteenth-best credit among our database’s 22 Canadian Cultivation & Retail companies with market caps over $10M. (See our weekly credit tracker for the detailed ranking.)

• A Tiny But Interesting Second Debt Deal
  • On April 14, 2023, PharmaDrug Inc. (PHRX: Nasdaq)(LMLLF: OTCQB) closed a $100,000 convertible secured debenture unit deal with some intriguing features that combine to produce an eye-popping effective cost of 24.27%.
  • The interest rate of 15% is unusually high for a convertible note; however, the conversion premium of 274% renders the conversion option virtually worthless, given the one-year maturity.
  • The units also included 100% warrant coverage with two-year maturities. Curiously, the exchange premium on the warrants is also set at 274%, reducing the value of the warrants to 1 basis point of bond value.
  • The conversion feature and the warrants combine to give 200% total coverage but are both nearly worthless, affecting the total bond net price by less than two basis points.
  • The additional feature that does matter is the closing fee of 8%, payable as an offset to the purchase price. This is essentially an 8% OID on a one-year note!
  • Just when we thought we had seen it all!