• The Week’s Largest Closed Equity Deal
  • On September 21, 2023, The Cannabis Company (CBST: NEO)(CCHWF: OTCQX), fka Columbia Care, the seventh largest U.S. MSO by market cap, announced that it had closed its previously announced private placement of 22.24M equity units of the company for aggregate gross proceeds of approximately $25M ($1.13 per share).
  • Each unit has one common share and ½ of a three-year warrant with an exercised price of approximately $1.45 (premium of 29%). After subtracting the warrants’ value, The net share price was roughly $1.02, a 24% discount to its prior closing price.
  • Investors have an option to purchase an additional $25M in additional units at the same price.
  • Proceeds of the issue will be used to reduce indebtedness and for general corporate purposes.
  • The company also entered into a non-binding agreement with the investors to repurchase up to $25M of their holdings of the 6% senior secured convertible notes due June 2025. The purchase price would be payable in common shares.
  • This is precisely the kind of transaction we have been anticipating based on a bounce in stock prices, and we think this is just the first of what we expect to be a wave of such transactions. Before the completion of the transaction, Columbia ranked #18/25 on the Viridian Credit Tracker Credit Model due to its high leverage, low profitability, and barely adequate liquidity. The company improved one ranking slot to #17 proforma for the transactions. (see our current rankings in the Viridian Insights section of the Tracker.
  • Completing the announced transactions would have a meaningful but not curative impact on Columbia’s leverage. As of June 30, 2023, the company had a total debt consensus 2024 EBITDA estimates of 4.93x. We have shown that in a 280e world, debt/EBITDA of even 3x is unsustainable. Assuming that investors exercise their option to double the size of the deal to $50M and sell $25M of the 6% notes for equity, total debt would fall by approximately $75M. Debt/EBITDA would come down to 4.26x, still too high, in our view, even in a post-280e world. Look for more financial engineering moves to follow.

Public vs. Private Raises: 

• All of the week’s three capital raisers are public companies. All trade in Canada (two on the CSE and one on NEO) and in the U.S. on OTC.

Equity vs. Debt Cap Raises: 

• Equity accounted for two raises and 62.7% of total proceeds.