First Quarter 2022 Capital Markets Review: Debt Financing Remains Dominant Source of Funding

First Quarter 2022 Capital Markets Review: Debt Financing Remains Dominant Source of Funding
Cannabtimes

<![CDATA[For Q1 2022, there were 70 capital raises totaling $1.2 billion. Compare that with Q1 2021, which saw 163 capital raise transactions totaling $4.6 billion. That’s a decline in transactions of 57% and a decline in total capital raised by ~74%.So, what’s happening here?  To be fair, Q1 2022 followed a strong first quarter when the number of capital raise transactions and total invested capital reached historic levels.Nonetheless, the quarter reflected a sharp falloff in investor interest in the cannabis sector due to: 1) any legislative progress re cannabis legalization; 2) declines in the market valuation of public cannabis companies, which made equity issuances dilutive and expensive;3) and the general decline in overall market sentiment. The S&P 500 declined more than 5% during the first quarter and has continued its decline since. Cannabis stocks are not immune from overall market trends, and given their more speculative nature versus larger more established companies the case could be made that cannabis stocks are inclined to fall more than the market at large. Further the appetite for M&A transactions and other kinds of financings tends to be diminished during times of market turmoil.  Nobody likes doing deals amid uncertainty.Shift in Capital Allocation by Industry Sector Cannabis transactions (capital raises and M&A) are allocated into one of 12 industry sectors to track the flow of deals by sector. For the last year, there has been a rotation of invested capital into different cannabis industry sectors. The chart below and the accompanying narrative detail this sector rotation.Cultivation & Retail, historically the most significant sector for equity financing, accounts for only $14 million (1.6%) of equity raised YTD in 2022, compared to $1.9 billion (52%) in 2021. This declining trend is likely to continue for several reasons:The MSOs have been able to use equity in acquisitions, one…

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Source : First Quarter 2022 Capital Markets Review: Debt Financing Remains Dominant Source of Funding

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