Jan 13, 2022
There’s been a significant shift in cannabis debt issuance, transitioning from equity-linked debt to straight debt. This shift reflects the industry's growing maturity and profitability (at least in the U.S.)
In early 2018, nearly all cannabis debt issues were convertibles, and many issues had additional attached warrants to achieve total coverages of over 100%.
As the U.S. MSOs became EBITDA positive in 2020, issuance of straight coupon debt began in earnest, led by the $300M Curaleaf deal in December 2020 and followed shortly after that by $100M and $120M deals by Cresco and TerrAscend, respectively.
Most of the top MSOs, including Ascend, AYR, Cresco, Curaleaf, Jushi, TerrAscend, Trulieve, and Verano, have now completed straight coupon issues in $100M+ sizes at rates between 8% and 10%.
The ability of Acreage Holdings and Glass House Brands to issue debt with no or little equity linkage is somewhat more surprising but explainable.
The key is that in a credit market starving for yield, the Glass House issue is priced at 890 basis points over U.S. Treasuries. Investors are being paid a sizable premium for taking cannabis risks, believed to be on par with a CCC rated bond.
Episode 863 The #TalkingHedge looks at Viridian Capital Advisors chart...
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