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 05/10/2024
Week ended 05/10/2024
Debt Commentary
Week ended 05/10/2024
- Debt accounted for 45% of trailing 8-week capital raises, jumping sharply due to this week’s Tilt, Canopy Growth, and C21 debt deals. 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
- On May 9, 2024, Tilt Holdings announced the closing of a $10.5M secured funding line for its Standard Farms subsidiary in Pennsylvania.
- The lender is an established retailer and operator in the market.
- The proceeds will potentially be used to construct and operate dispensaries in Pennsylvania under Pennsylvania Senate Bill 773, which allows independent operators to apply for a permit that will allow for three dispensary locations.
- Tilt considers the financing to be a “backstop” to assure its ability to become vertically integrated in the Pennsylvania market. Tilt has been a grower and processor in the P.A. market since 2019, selling to a majority of the dispensaries in the state.
- The Note will mature on December 31, 2027. The interest rate starts at 20% and automatically increases to 30% upon the first commercial sale from a retail location. Rates rise to 40% six months after the Location Opening Date.
- The Note will be secured by a corporate guarantee to be replaced with a first lien on the retail operations’ assets funded through the proceeds.
- No cash interest or principal payments will be due under the Note prior to maturity, and the notes are not prepayable without the consent of the lender.
- Our first impression of these deal terms was disbelief. We do not remember ever seeing rates that graduate from 20% to 30% to 40%! We do understand the need for a high IRR for the lender, though, as Tilt currently ranks 28/30 on our weekly credit rankings of MSOs. Several better-ranked credits like AYR have debt that is offered in the 20% range.
- Usually, that gap would be bridged via equity-linked features like convertibility or warrants. However, Tilt, with adjusted net debt/2024 EBITDA of 21x and total liabilities to market cap of 15x, has a stock that is arguably trading as an out-of-the-money call option.
- The provision that bothers us most is the inability to prepay the notes. Presumably, if Tilt solves its other liability issues and rescheduling and other catalysts proceed, the company will have more attractive funding availability, and it would be great to be able to take this Note out to refinance with something less expensive.
- We trust that the company will use this credit availability sparingly and that the lender will be open to potentially getting paid off early before the full compounding impact of the extraordinary rates eats through any corporate value.
- On May 6, 2024, C21 Investments (CXXI: CSE)(CXXIF: OTCQX) announced the closing of a $2.93M private placement of convertible debenture units.
- Each of the 4,000 units includes a convertible debenture with a face value of C$1,000 and 1,000 common share purchase warrants exercisable for 30 months at a price of C$.55 ( a 6.78% discount to the closing price of the stock)
- The debentures carry a 12% interest rate, mature on 11/6/26, and are convertible at C$.45 per share (a 23% discount)
- The discount conversion is costly. Its value is nearly 41 points of the bond price, which, along with the value of the warrants, results in a 37.8% effective cost.
- It is unclear why this issue is priced so attractively to investors. C21 is not that bad of a credit, ranking 12/30 on the Viridian Credit model. The Nevada market notwithstanding, the company was able to register positive free cash flow for the year ended January 2024. The cost of the issue seems out of place. Perhaps one of our readers has an explanation?
Week ended 05/10/2024
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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 05/10/2024
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 05/10/2024
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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.