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Cannabis Watch: Cannabis companies pivot to debt to raise capital as stock prices lag

Columbia Care Inc. and Trulieve Cannabis Corp. announced separate debt deals in recent days as cannabis companies turn away from issuing stock to raise capital in the face of weak share prices.

Columbia Care CCHWF, -4.48% on Thursday said it closed a hefty debt offering valued at $185 million from a private placement with unnamed investors. The debt was priced at 9.5% in the form of senior secured first-lien notes due 2026.

Meanwhile, Trulieve Cannabis TCNNF, -3.52% TRUL, -3.37% on Jan. 28 said it closed a $75 million private placement of 8% senior secured notes due 2026. The deal marked its second tranche of senior notes following a $350 million debt offering that closed on Oct. 6.

Canaccord Genuity Corp. CCORF, -1.56% CF, -1.45% led the debt deals for both Trulieve and Columbia Care.

Trulieve CEO Kim Rivers she’s seen healthy debt appetite from investors, particularly in the larger multi state operators.

“Given the current trading levels for our stock and the attractive rates for debt, issuing this second tranche made sense,” Rivers said. “The cost of capital is coming down as investors gain increasing comfort with industry and collateral and market dynamics. U.S. multi-state companies have built real businesses that are generating operating cash flow.”

Unlike their Canadian counterparts that remain in the red, Trulieve managed to post third-quarter net income in November.

At the same time, Trulieve’s stock is down nearly 17% so far in 2022 and off by 49.3% in the last 12 months. Columbia Care stock has fallen about 1% in 2022 and more than 59% in the last 12 months.

Overall, cannabis stocks remain weak with retail investors as U.S. legalization stalls, despite growth in the number of states with medical or adult use programs. Just this week, Mississippi became the 37th state with a medical use program.

See: Mississippi governor signs medical cannabis bill

The Cannabis ETF THCX, -2.97% is down about 15% so far in 2022, compared to a loss of 5.2% by the S&P 500 and a drop of about 10% by the Nasdaq composite.

With slack demand for their stock now, companies are often avoiding additional stock issuances that could dilute their share prices even more.

Although total capital raising of all types by cannabis companies remains weak, debt issuance now comprises 52% of trailing four-week capital raises as of Jan. 28, up from less than 10% at the end of the year, according to Viridian Capital Advisors. Total capital raises in the first month of 2022 came in at about $249 million, down 81% from the year-ago period.

For its part, Trulieve plans to use its fresh debt capital to expand its hubs in Florida, Pennsylvania and Arizona.

It also operates in Maryland, Massachusetts, Connecticut and West Virginia, with an eye on potential expansion in the Northeast.

“We continue to evaluate opportunities to enter other markets including New Jersey and New York,” Rivers said. “However, all new markets are vetted to ensure that [they] are the right opportunity at the right price.”

Columbia Care CEO Nicholas Vita said the company plans to use the $185 million in debt to fund growth in New Jersey, New York and Virginia, including acquisitions.

“This non-dilutive financing provides Columbia Care with additional flexibility to continue executing on our strategic growth initiatives,” Vita said in a statement.

Also Read: Verano eyes ‘coveted’ New York market in all-stock purchase of Goodness Growth

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