Cannabis companies win cheaper debt offers


Cannabis companies are seeing robust sales growth, winning better credit deals as a result.

According to Canaccord Genuity, US legal cannabis sales exceeded $ 17.5 billion in 2020, up 46% from 2019. Cowen analysts estimate annual legal business sales will reach $ 41 billion by 2025.

In California, the country’s largest market, 45% of residents said they bought cannabis this year, up from 33% in 2020, according to cannabis analysis firm BDSA. Similar upward trends emerged in other states in legal recreational cannabis, suggesting continued momentum.

Sales power makes cannabis companies more attractive to lenders.

For one thing, Green Thumb Industries reported comparable sales growth of 90% in the first quarter and said it had also secured a coupon below 10% on a debt deal – a first for a large US public farmer. According to Viridian Capital Advisors, after considering warrants, the company received a three-year loan at an interest rate of 9.1%.

Sure, that’s still expensive by most industry standards, but just two years ago, before the pandemic, cannabis companies were typically paying rates closer to 15%.

Terms are also improved – including longer terms and the ability to pay off debts before they fall due. For example, Curaleaf recently secured a 10.25% prepayment facility.

In their recent phone calls, Curaleaf and GTI executives said that debt is becoming more attractive.

This suggests that more wealthy family offices and institutional investors will be interested in the provision of debt – and the cost of debt could fall further. As the industry matures and the financial position continues to improve, lenders see more security in loans to cannabis companies.

While traditional banks are cautious because cannabis is not yet legal at the federal level, the fact that the cost of capital is falling in alternative markets reflects a growing belief in the industry’s long-term growth prospects.

The reputational stigma associated with cannabis is waning as more states legalize cannabis and state legalization becomes more likely. After the Democrats took control of the Senate earlier this year, the postponement now put the US on the path to full state legalization.

This followed in November in Arizona, Montana, South Dakota, and New Jersey, all of which approved adult use legalization. New York and several other states have since followed suit. States and the federal government are hungry for new tax revenues that provide an added incentive to expand the legal sector.

The SAFE Banking Act – a proposal in Washington that would ensure banks could take over cannabis business customers with no federal penalties – would lead to more credit options for cannabis companies, in addition to securing day-to-day banking services.

This story originally appeared on Benzinga. © 2021

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Benzinga, Cannabis, Corporate Bonds, Cost of Capital, Curaleaf, Green Thumb Industries, GTI