Third Quarter Cannabis Financing Shows Preference for Debt


<![CDATA[The financing constraints that many cannabis operators face are a familiar story. Much revolves around impediments from lack of legalization at the federal level; however, other traditional drivers play a role as well, including industry and business life cycles. In recent months, the convergence of a number of factors, including increasing amount of capital providers, stronger credits and a low interest rate environment, has resulted in an emergence of debt financings and, in some cases, lower borrowing costs for operators. Recent Cannabis Debt FinancingsOver the last six to eight months, some larger multi-state operators have benefited from lower interest rates, achieving attractive financings with a sub-10% interest rate. For example, Green Thumb Industries announced a senior debt financing on April 30, 2021, where the company was able to refinance existing senior secured debt with a $217-million senior private placement at a 7.0% interest rate. Most recently, Ascend Wellness closed a $210 million Senior Secured Term Loan at 9.5% on August 30, 2021.While these rates indicate an attractive progression in debt pricing and availability to the sector, they are not achievable for all operators due to various factors including credit size, potential collateral, credit quality, revenue concentration, profitability levels, capex requirements, among others. Borrowing costs have come down significantly, yet despite some recent exceptions, rates still range between 12-20%. The main factors influencing the rate cannabis companies can get are credit size and potential collateral.Why have rates come down?Many perceive that the U.S. is inching toward legalization, providing lenders comfort in business model as compared to previous years.Aside from the prospect of federal legalization, more lenders are entering the space, which provides more supply for dollars. While the exact data is opaque on how many banks and credit unions have jumped into the cannabis industry, more and more institutions are gaining comfort…

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