Multi-faceted cannabis company TILT Holdings Inc. (CSE: TILT) (OTCQB: SVVTF) said that it has signed a binding term sheet for a private placement of $125 million from a syndicate of institutional investors led by UCP, a Toronto-based investment firm specializing in cannabis and alternative assets. The company said that the money will be in the form of convertible senior secured notes that will provide aggregate gross proceeds of $50 million and could go up to $125 million. The deal is expected to close in August.
The financing deal comes not long after the company was heavily criticized for taking a $500 million write-down after reporting its 2018 fiscal year results in May and five months after going public. The CEO and the company’s Chairman both resigned as the company claimed the executives were mostly in their roles to bring the company public. New shareholders were understandably upset when the company blamed the overvaluation on its investment banker and felt they had been duped.
Investors were also unhappy that the company arranged a $20 million financing deal with the eye-popping 18.75% rate. That debt was to come due at the end of this year and while TILT characterized it as an investment, it was a bridge loan. This round of financing will be used to pay off that loan.
“This financing demonstrates TILT’s access to long-term capital partners committed to realizing the TILT vision and TILT’s drive towards potential profitability, free cash flow and scaling,” commented Mark Scatterday, Interim CEO. “This investment into our business, at significantly improved terms to our existing debt facility, is a reflection of the value of our assets, the support investors are providing to a new transparent management team, and the opportunity for TILT’s strategic positioning to unlock that value. With our new leadership in place, we have already implemented imperative cost-cutting measures throughout the organization so that this new capital will be utilized in the most fiscally responsible way. Using the minimum $50 million positions TILT to reach potential profitability and become cash flow positive. Having access to $125 million enables TILT to take advantage of both organic and acquisition-based growth opportunities that will enable TILT to solidify its position as a top revenue-generating company in the sector. We look forward to sharing more about our comprehensive plan that is underway, recent management upgrades, and Q2 results in August.”
TILT said it intends to use the proceeds to continue its rapid yet disciplined focus on profitability as one of the largest US-focused cannabis companies by revenue.
The notes will have a maturity date of 36 months from the closing date and will bear interest from their date of issue at 8.0% per annum, payable quarterly. During the term of the notes, TILT said it may choose to pay a portion of the interest in kind and prepay the notes without penalty any time after the first year with 60 days’ notice to the holders of the notes.