• Debt accounted for 21% of trailing 8-week capital raises, down sharply due to the recent Compass Pathways equity transaction and lack of significant recent debt deals. We expect this ratio to be volatile because of the limited capital raise activity. It will be interesting to see which companies take advantage of the rescheduling-spurred price increases to issue equity.

The Week’s Largest Closed Debt Issue:

• On September 8, 2023, Optimi Health (OPTI: CSE)(OPTHF: OTCQX), an $11M market cap Canadian drug research and formulation company licensed by Health Canada to manufacture psychedelic substances like MDMA and GMP-grade psilocybin, closed a security agreement for $0.732M.
• The loan carries a 7.5% interest rate and matures on August 29, 2026.
• The lenders were granted a total of 100,000 warrants exercisable for three years at $0.366 per share (173.4% premium).
• The warrants offer around 5% coverage; however, the extreme premium renders them nearly worthless, increasing the yield by only 1bp to 7.51%.
• The loan is secured by substantially all of the assets of the company.
• The loan represents the second tranche of a loan agreement in which the first $1M tranche was provided by the company’s chairman’s investment firm, potentially explaining what appears to us to be highly aggressive pricing. As a small, negative cash flow company with extremely tight liquidity, we would not expect Optimi to be able to finance at 7.5%.
• Optimi has low leverage with a debt-to-market cap of only .07x. However, Optima has extremely weak liquidity. Its current ratio is marginal at 1.03x, but its free cash flow adjusted current ratio is critically low at -2.4x because of its $-3.7M annualized free cash flow. We expect the company to require more financing shortly.