On January 23, 2020, Cresco announced the execution of a non-brokered credit agreement. Under the terms of the financing, Cresco will complete an initial drawdown of US$100 million on or about January 30, 2020. The deal contains a mutual option to increase the size of the facility to US$200 million.
The emergence of debt financing for some of the leading MSO’s was telegraphed to the cannabis industry in December.
Curaleaf Holdings (CAN:CURA / US:CURLF) was the first U.S. cannabis company to secure such financing. On December 20th, Curaleaf announced a US$275 million senior secured loan facility.
Cresco's CEO Charlie Bachtell commented on the financing.
“Through this deal, we have diversified the Company’s funding sources, improved our cost of capital in a non-dilutive manner and given ourselves flexibility in a dynamic capital environment. As we enter 2020 and our business continues to increase its positive free cash flow, Cresco is well-positioned to continue growing its foothold in the most strategic cannabis markets in the U.S., while building the most important company in the industry.”
As with the Curaleaf deal, Cresco’s new line of credit will carry an interest rate of ~13%. Still, with marijuana stock valuations at absurd lows and credit tightening in the cannabis space, it is welcome news to the company and its shareholders.
Following Curaleaf’s financing, the stock has risen roughly 30% over the past month. Shareholders of Cresco Labs will be anticipating a similar bump in share price.
Bolstering Cresco’s valuation is its strong position in Illinois. The U.S.’s newest fully legal cannabis market has taken off in its initial weeks since the new law came into effect on January 1, 2020. Explosive sales in early weeks project to US$600 million in revenues in the first year of legalization.
Cresco also boasts a strong portfolio of cannabis brands, including Cresco, Remedi and Mindy’s. This is supported by one of the most robust distribution chains among U.S.-based cannabis companies.
With marijuana stock valuations compressed, this new financing does more than solidify Cresco’s balance sheet. It also allows the company to be an industry consolidator as some of the smaller players in the U.S. cannabis industry are absorbed.
Cresco Labs stock is currently trading up 2.89% on the day to CAD$8.54.