Cannabis Debt Looms For These Weed Giants: Here's How Some Tackled Their Financial Challenges

Benzinga · 10/16 18:46

It's no secret that cannabis companies are facing some formidable challenges when it comes to raising capital, thanks to marijuana’s onerous classification as a Schedule I controlled substance under federal law. But now with potential changes on the horizon, such as cannabis rescheduling and banking reform, more companies just might improve their financial positions and attract new investments.

Even now, in anticipation of potential regulatory changes, there's been an increase in capital raises. Frank Colombo, managing director of data analytics and investment banking at Viridian Capital Advisors, provided an overview of capital raising trends the Benzinga Cannabis Capital Conference. He told the crowd gathered in Chicago there’s been an increase of 14.8% in capital raises in 2024, driven mostly by Canadian equities and U.S. debt.

Colombo said U.S. debt accounts for over 50% of capital raises, indicating a reliance on debt financing rather than equity in the market. Retail and cultivation sectors are responsible for half of all capital raises. However, out of 12 different sectors, “investments in M&A" were “really up,” he explained.

But Still…Cannabis Debt Looms

Green Market Report's Debra Borchardt took a closer look at what she called it "a tsunami of debt headed straight for the cannabis industry," or approximately $1.83 billion of the debt that's due by 2026 that many public marijuana operators opted for earlier as they lacked much-needed capital.

According to regulatory filings for the publicly traded businesses in the industry large cannabis operators Curaleaf Holdings, Inc. (OTC:CURLF), Cresco Labs (OTC:CRLBF), Trulieve Cannabis Corp. (CSE:TRUL) (OTCQX:TCNNF) and Verano Holdings (OTCQX:VRNOF) are about to face debt maturities in 2026, explained Borchardt who was also a guest at Benzinga’s conference in Chicago.

Read Also: EXCLUSIVE: Cannabis Companies Must ‘Get More Juice From The Same Squeeze,’ Says Cresco Labs CEO As Challenges Persist

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While these companies have yet to navigate considerable debt challenges while focusing on their growth and operations, other big players in the space have successfully managed their respective debts, at least for now.

Borchardt highlighted Ascend Wellness Holdings' (OTC:AAWH) and Green Thumb Industries Inc. (CSE:GTII) (OTCQX:GTBIF) "preemptive actions" to address their growing debt issues while mentioning TerrAscend Corp.’s (TSX:TSND) (OTCQX:TSNDF) FG Loan which will mature in 2028.

New York-headquartered Ascend closed its previously announced private placement of $235 million of 12.75% senior secured notes due 2029 in July with plans to prepay $215 million of principal amounts outstanding under its existing term loan.

Meanwhile, the owner of RISE Dispensaries closed on a $150 million 5-year syndicated credit facility led by Valley National Bank, the principal subsidiary of Valley National Bancorp which will allow it to retire its $225 million senior secured debt due April 30, 2025.

Jason Wild, executive chairman of TerrAscend said the recent completion of the second and final draw of $26 million as part of its $140 million senior secured term loan, enabled the company to have "no other material debt maturing until late 2027."

Financial Institutions Set To Earn Billions In Interest Revenue

A new report from Whitney Economics backed by CTrust and Green Check projects that the U.S. cannabis industry will need between $65.6 billion and $130.7 billion in sustainable growth capital to support new cannabis businesses and help refinance existing ones over the next decade.

On the flip side, the market will generate roughly $1 billion to $2.4 billion in potential interest revenue for financial institutions willing to lend to cannabis businesses, over the same period, according to the report.

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