It’s important for investors in any industry to watch out for capital raises. The rapidly growing marijuana sector is no different. When there’s money on the table, it would be foolish for investors to ignore vital capital raise details including how much money was raised, why the money was raised, and under what deal terms the money was raised. Some financing structures are more dilutive than others, and missing these signals can come back to bite you.
With few industries growing as quickly as the cannabis space, it’s no shock that there were five publicly-listed marijuana stocks raising money recently. It is a sure sign that investors have recognized the tremendous upside potential that pot stocks have to offer.
Debt
- Aphria Inc. (TSX:APH) (OTC:APHQF): While it wasn’t announced until July 31st, Aphria entered a $25 million CAD loan from WFCU Credit Union on July 27th. The five-year term loan bears interest at 4.68%, and has a 15-year amortization. Additionally, the term loan is secured by a “first charge” on Aphria’s real estate holdings, and a “first position” on a general security agreement including cash, accounts receivable and inventory. This is the second round of debt-financing secured by Aphria from WFCU, having previously secured a $25 million five-year loan on May 9th, 2017. While the company did not disclose any specific use of proceeds, Aphria CEO Vic Neufeld stated that “as our company and industry evolve we are always looking for opportunities to normalize our debt to equity structure.”
- Delta 9 Cannabis Inc. (TSXV:NINE) (OTC:VRNDF): On July 25th, Delta 9 announced that it finalized terms on a $12,000,000 CAD loan and credit facility “with a Tier 1 Canadian chartered bank.” While the company will not be releasing the name of the bank until the signing of the loan, the terms include a demand operating loan of $2,000,000 CAD to be used to finance day-to-day operations. Interest on this loan will float at a rate of 1.00% per annum above the bank’s prime lending rate, which at the current time is 3.45% per annum. Additionally, terms include a demand revolving loan of $4,500,000 CAD which is intended to assist in financing the purchase of Delta 9’s current production facility. Interest will initially float at 1% above prime, but the bank will use its best efforts to obtain funds on a fixed rate acceptable to Delta 9 and the bank, which is intended to be at between 4.68% per annum for a one year term up to 5.45% per annum for a five year term. The third piece is a demand non-revolving loan of $4,500,000 CAD to assist in the purchase of lands adjacent to the Company’s current production facility. Interest will float at a rate of 1.00% per annum above prime, with fixed rate pricing subject to negotiation up to the date of draw down. Lastly, the terms include a non-revolving credit facility of $1,000,000 CAD for the purchase or lease of equipment required for the operation of the company’s business. Interest will float at a rate of 1.75% above prime, with fixed rate pricing to be the subject of negotiation up to the date of draw down.
Equity
- Inner Spirit Holdings Ltd. (CSE:ISH): On July 23rd, Inner Spirit Holdings announced that it increased the size of, and filed the final prospectus for, its previously announced initial public offering. The company increased the size of its previously announced IPO to a minimum of 20,000,000 and a maximum of 25,000,000 units of Inner Spirit at a price of $0.15 CAD per unit for minimum gross proceeds of $3,000,000 CAD and maximum gross proceeds of $3,750,000. Each unit consists of one common share in the capital of the company and one-half of one common share purchase warrant. Each unit warrant will entitle the holder thereof to acquire, subject to adjustment in certain circumstances, one common share in the capital of the company at an exercise price of $0.30 for a period of 24 months following the closing date, subject to certain adjustments. Shares of Inner Spirit subsequently began trading on the CSE on July 30th.
- Speakeasy Cannabis Club Ltd. (CSE:EASY) (OTC:SPBBF): On July 24th, Speakeasy Cannabis announced the close of its non-brokered private placement of 4,285,714 units at a price of $0.70 CAD per unit for gross proceeds of $3,000,000 CAD. Each unit is comprised of one common share of Speakeasy and one common share purchase warrant of Speakeasy. Each warrant will be exercisable into a common share of Speakeasy at an exercise price of $1.00 CAD with a 1-year expiry. Aside from the $19,250 CAD finders fee that was paid in connection with the financing round, the money raised has been earmarked for general working capital.
- Tilray, Inc. (NASDAQ:TLRY): Perhaps the most widely covered financing out of all the capital raises mentioned in this list, Tilray became the first cannabis company to complete an IPO in the United States last week when it sold 10,350,000 shares of Class 2 common stock, including the full exercise by the underwriters of their option to purchase 1,350,000 additional shares of Class 2 common stock, at $17.00 USD per share. This announcement came just days after Tilray’s Class 2 common stock began trading on the Nasdaq Global Select Market.
Conclusion
For the most part, these companies’ capital raises will all be used for continuing operations. Given the growth stage that the cannabis industry is in right now, many companies are focused on staying ahead of the pack in terms of market share. This tooth-and-nail fight for market share has pushed bottom-line results to the back burner for the time being. With that said, employees still need paychecks, and therefore capital raises are the way to go.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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