• Debt accounted for 74% of trailing 8-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 Closed Debt Raise:

• On 5/16/23, Tilt Holdings (TILT: CSE), a competitor in both the Cultivation & Retail and Consumption Device sectors, raised $4M through a private placement of senior secured note Bridge Financing with existing secured note holders.
• The notes are priced at the higher of 16% or Prime +8.5% (16.75% currently) and mature on 12/31/23.
• The notes have a principal value of $4.5M and an OID of $500,000 (11.11%). This OID significantly impacts the yield of this short-maturity debt. We calculate a YTM of 37.45%.
• A change in the payment terms of a critical supplier necessitated incurring the debt.
• Simultaneously, TILT obtained a limited waiver on its $38M secured notes and $8.2M secured notes to suspend interest payments until the shorter of the Bridge Loan Maturity or through December 2023. The notes will accrue at the default rate of the higher of 24% of Prime plus 16.5% until the notes are paid current.
• Tilt had just fixed its liquidity problems by refinancing its previous two maturing debt layers with two tranches of new debt and a sales leaseback. However, it clearly did not anticipate that it would need this additional funding.
• On May 22, 2023, Tilt announced that its CFO, Dana Avidson, resigned only one month after the resignation of former CEO Gary Santos.
• On Friday, the stock market took the news of the new note issuance in stride and bid up the company’s stock by 7%. However, the CFO’s resignation pushed the stock down 17% today.
• The ability to accrue interest on the secured debt should assure the company’s near-term liquidity, and we look forward to seeing further operating expense cuts to shore up the financials further.