Chart Of The Week: Cannabis Debt Volumes Are Increasing And Costs Are Declining

Debt issuance for the U.S. Cultivation & Retail sector in H2:24 is already ahead of any period since H2:22. With the additional financing expected for the remainder of the year, issuance should top all periods except the second half of 2021 and the first half of 2022.

• The large majority of H2:24 debt issuance has been refinancing activity, including Ascend AAWH,  Jushi JUSHF, and Terrascend

  TSNDF. Each of these was priced at attractive rates despite all of them having tax-adjusted net debt well above 3x Debt/EBITDA. Debt investors are willing to believe 280e relief is on the way.

• The dark green bars on the graph depict the dollar amount of debt issuance on which sufficient data is available to calculate the effective cost. The light green bars represent the issuance where insufficient data was available. The blue bar in H2:24 depicts the additional refinancing activity we believe is likely for the remainder of the year, composed mainly of Green Thumb GTII and Curaleaf CURA maturities. The red line shows the dollar-weighted average effective cost of the raises. The blue line shows the yield spread to the 3-year treasury.

• Viridian evaluates all debt issuance on a common basis, taking into account coupon, maturity, OID, convertibility, and attached warrants. We explicitly value the embedded conversion options and warrants as additional original issue discounts in order to calculate the effective cost. 

• H2: 23 effective costs were unusually low due to the high concentration of bank debt financings, including a $25M, 8.31% Trulieve, a $58.7M, 8.43% Marimed, a $25.5M, a $25M, 8.4% Cresco, and a $40M, 8.26% AYR.

• H1: 24 average effective costs were high due to two costly deals. AYR raised $50M in an add-on, which included a 13% coupon at a 20-point OID with 122% warrant coverage with -7% exercise premiums, producing an effective cost of 29.9%. The $19.5M Cannabist 9% convert was sold with a 20-point OID and a conversion premium of only 13% to create a 28.6% effective cost.

• The average effective cost has come down sharply to 13.8% in H2: 2024. The transactions in H2 included $222M Ascend at 14.24% cost, $140M TerrAscend at 12.75% cost, and $47.5M Jushi at 14.88%. 

• Spreads to treasuries are nearly back to the halcyon dates of 2021, but with favorable action on rescheduling, we believe an additional tightening of 200-300bps is possible.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)

• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)

• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)

• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)

• Credit Ratings (Leverage and Liquidity Ratios)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.