Debt has almost completely overtaken the U.S. cannabis industry as a method of fundraising, according to a report published Monday by Viridian Capital Advisors. In addition, the firm revealed that many public marijuana businesses are overleveraged and could face serious issues if too many bills come due in the near future.
“Debt became the largest source of capital to the industry in 2022, and its percentage of total capital raised has increased further in 2023 YTD,” Viridian reported, citing financial statistics from 2021 and 2022 showing that nine of the 10 largest debt capital raises in the industry’s history for retailers and cultivators closed in those 24 months.
The report further noted that $4.3 billion in debt was sold by marijuana companies in that two-year span, “far more than in any similar period in U.S. cannabis history.”
The end result of the multiyear trend of financial hardship and creative financing has taken its toll, Viridian warned, with “several companies with more debt than is sustainable on a long-term basis, particularly in the face of IRS rule 280E.”
“Investors are paying close attention to the MSOs’ ability to repay, extend, or refinance upcoming debt maturities,” Viridian warned in its report.
Even if 280E is done away with via federal rescheduling by 2025, the Viridian report found that the current debts of several multistate operators could become a major problem, based on current cash flow levels versus debt maturities.
The latest Viridian report examined the financials of 10 leading multistate operators and found that four of them “have maximum shortfalls after debt maturities of between 1% and 13% market cap,” which Viridian suggested could “be readily financeable” and thus not too much of a hurdle. Those include:
- The Cannabist Company Holdings (NEO: CBST) (OTC: CCHWF)
- Cresco Labs (CSE: CL) (OTC: CRLBF)
- TerrAscend Corp. (TSX: TSND) (OTC: TSNDF)
- Trulieve Cannabis Corp. (CSE: TRUL) (OTC: TCNNF)
But three have “more worrisome shortfalls,” Viridian reported. Those include:
- Jushi Holdings (CSE: JUSH) (OTC: JUSHF), which is forecast to have a “net cash flow shortfall of about $97 million in 2024, representing about 66% of its market cap.”
- Ascend Wellness Holdings (CSE: AAWH.U) (OTC: AAWH), which has “a projected shortfall of $224 million in 2025, representing 113% of its market cap.”
- Ayr Wellness (CSE: AYR.A) (OTC: AYRWF), which has “a 2024 gap of $295 million, representing 206% of its market cap.”
The final three in the 10 analyzed – Curaleaf Holdings (CSE: CURA) (OTC: CURLF), Green Thumb Industries (CSE: GTII) (OTC: GTBIF), and Verano Holdings Corp. (CSE: VRNO) (OTC: VRNOF) – “have no projected shortfalls in 2024 or 2025,” Viridian reported.