Is the tide beginning to turn in the cannabis capital markets? After a long drought, one that I’ve mused about time and again since mid-2019 (recall that things really started to tighten up around March/April 2019 as public valuations started to drop), it kinda sorta looks like capital is maybe starting to flow back into non-hemp cannabis in a meaningful way. From my perspective, based on what we’re seeing, what I’m reading, and what I’m hearing from others, a lot of that activity is on the debt side (which I actually predicted! link), but even fresh equity deals are getting done.
Why? I think that it’s a plethora of factors. On the debt side, more non-bank/alternative lending firms are coming into the space for the first time, seeing the opportunity for outsized returns relative to other first lien (meaning the lien securing the debt is ahead of all other lenders) paper (an insider word for a loan), particularly in a low-rate environment. They’re coming to understand that they can accept the risk of investing in cannabis, even with federal illegality and all of the challenges of enforcing rights against cannabis collateral (trying to seize and sell cannabis inventory and licenses). Additionally, as the industry has grown, the larger companies have sizable balance sheets and asset bases that lenders can sufficiently underwrite (meaning, they have enough assets to borrow against to make it worth the risk of lending).