Big Marijuana Embraced Convertibles. Now They’re Under Water

Big Marijuana Embraced Convertibles. Now They’re Under Water

(Bloomberg) — The bear market in pot stocks has left billions in convertible debentures underwater, meaning cash-starved companies may have to “creatively restructure” their debt or pay a bill they didn’t expect would come due.Cannabis companies hopped into convertibles in the last three years when their stock prices were soaring and traditional debt markets were largely closed to the untested, unprofitable and stigmatized sector. Issuers that tapped the U.S. markets included Canadian pot giants Canopy Growth Corp., Aurora Cannabis Inc., Tilray Inc. and Aphria Inc.Converts are a form of interest-paying debt that can be converted into stock at a set price. Investors generally buy them on the assumption that shares will appreciate, giving them the opportunity to convert at a discount. If they choose not to convert, companies have to repay the principal when they mature.That was appealing when stocks were appreciating, but the recent rout in what had been high-flying marijuana stocks has left the shares far below the conversion price — at just the time when cash-strapped companies are finding it tough to raise capital.“We expect more companies with near-term maturities to attempt to creatively restructure their converts if they can,” said Neil Selfe, founder and CEO of…

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