Cannabis MSOS 2023 Debt Cliff Concerns Overblown—Most Debt Matures In 2024 & Beyond

There’s been some talk about potential ‘debt cliff’ concerns facing U.S. cannabis multi-state operators (MSOs) in 2023. The theory goes that publicly-traded companies struggling on the capital markets, and with cash balances contracting due to continuing net losses (with few exceptions), MSOs will have difficulty making principal payments on maturing debt coming due. TDR looked at the filings of nine major U.S. cannabis companies to determine whether debt cliff concerns were grounded in reality for 2023.

The term debt cliff, in capital markets parlance, refers to a situation where a company faces a sudden increase in its debt obligations in which it may not be able to repay or refinance. This can happen, for example, when a large amount of debt issued by a company is set to mature or become due for repayment within a short period of time. If the company is unable to repay or refinance this debt, it may result in a default on its obligations.

In turn, failing to repay debt could lead to severe financial repercussions, such as a credit rating downgrade, higher borrowing costs, triggering of negative lending covenants and declining investor confidence.

Luckily, debt cliff concerns that some prominent industry investors have eluded to may be overblown—at least in context to 2023. This is not to say that principle repayment concerns don’t exist. But the plurality of debt for the top operators is set to mature in 2024 and beyond.

*Note: The table below does not include promissory notes under $10 million or future MSOs lease liabilities.

The one exception was Columbia Care 13.00% Senior Secured Notes due May 14, 2023. That was until the company announced that principle repayment on the notes would be delayed by extending the maturity date of its notes amounting to $38.2 million—originally due on May 14, 2023—by an additional twelve months. Effectively, Columbia Care will continue paying interest as before for another year until the debt matures on May 14, 2024.

So with that potential debt cliff averted (for now), the near term picture for the industry looks less ominous. With Curaleaf’s assumingly retiring $50 million of 2023 Bloom Notes in January (to be confirmed on audited financial report), only a couple of minor MSOs debt maturities remain this year.

Going forward, debt maturities are set to markedly increase in 2024. We count approximately $596 million on-aggregate principal payments due next year from the nine operators studied, excluding GTI’s April 30, 2021 Note maturity, originally due April 30, 2024, pushed back to April 30, 2025. After a dip in expected maturities 2025, principal paybacks increase decisively in 2026, with over $1.83 billion in debt coming due.

In other words, the real debt cliff among the top MSOs actually kicks off in 2026—not this year. Hopefully by that time, capital market conditions will be such that MSOs will be endowed a more favorable capital raising environment to deal with their financing commitments.

With a cannabis rescheduling review well underway under directive of President Joe Biden, and with a growing chorus of voices calling for SAFE Banking passage, odds of better days in the public markets appear probable. If so, the specter of a real debt cliff triggering in 2026 may not seem so daunting.

This article was originally published on The Dales Report and appears here with permission.