A little over a week ago, Canaccord Genuity leaked the news that some big debt deals were coming to the cannabis industry – soon -- and we reported on that. Now these financings have started to materialize.
On Friday, Curaleaf Holdings (CAN:CURA / US:CURLF) announced a Senior Secured Term Loan Facility that will provide Curaleaf with US$275 million in fresh capital.
The cash is not coming cheap. Curaleaf will pay a 13.0% interest rate on this debt, payable quarterly over a four-year term. The capital comes via “existing lenders as well as other United States based institutional investors.”
Still for cannabis companies – and cannabis shareholders – it’s a lesser of evils. With cannabis share prices having been taken down in 2019 to totally irrational levels, neither the management of these companies nor their shareholders want to see highly dilutive equity financings at these prices.
In the case of Curaleaf, this is a company backed by some heavy hitters, starting with Russian billionaire, Roman Abramovich. The Company now also includes its own self-created billionaire (also Russian): Curaleaf’s Chairman, Boris Jordan.
It’s all about access to savvy deep pockets to make it through the current capital-crunch that has hit the cannabis industry. In the case of Curaleaf, which has committed ownership with global financial ties, such debt financing is a natural choice.
As the U.S. cannabis industry moves into 2020, Curaleaf now has the financial clout to not only fully fund its current expansion plans, it has enough capital to look to take out some of the smaller fish in the U.S. cannabis industry – currently at pennies on the dollar.
While Curaleaf is making the news today, it’s not the only U.S.-based MSO that is benefitting from debt financing. Also on Friday, iAnthus Capital Holdings (CAN:IAN / US:ITHUF) announced US$36.15 million of senior secured convertible notes – from Gotham Green Partners.
This is part of a larger $100 million financing plan that iAnthus announced on September 30, 2019. iAnthus has also agreed to pay a 13% annual coupon on this debt.
The main difference between the new financing completed by Curaleaf versus the debt financing obtained by iAnthus? One word: “convertible”.
Curaleaf’s financing is pure debt. No dilution. iAnthus’ financing is convertible debt. Debt holders can elect to convert their debt to shares. However, the conversion terms are not as onerous as some of the convertible debentures that are currently haunting many cannabis companies.
iAnthus’ debt can be converted into common shares at a conversion price of $1.89. That represented a 25% premium to the closing price on September 27, 2019. iAnthus is currently trading at $1.32. There are also 10 million warrants attached to the financing, exercisable at a price of $1.97.
Stacked against the iAnthus financing, it’s clear to see why the new debt financing achieved by Curaleaf is a preferable option for the larger players in the cannabis industry going forward.
In an emerging industry with significant capital demands, minimizing dilution is a corporate priority under any circumstances. In the case of the cannabis industry – currently burdned with extremely depressed share prices – it’s a survival strategy.