Cannabis Chart Of The Week: The Changing Makeup Of Cannabis Capital

• The chart shows YTD capital raises by size and type of raise. Green bars show raises under $10M; brown bars are between $10-$25M; blue indicates $25-$100M, and red bars indicate capital raises over $100M. Within each color range, lighter tones indicate debt raises while darker tones indicate equity raises.   

• Less cannabis capital has been raised YTD in 2022 than in any previous year except 2020, the last “capital crunch.”

• YTD, equity represents 48.9% of total capital raised, its lowest level in recent history.  

• The largest and smallest size categories show particularly pronounced declines. Equity transactions of under $10M accounted for 4.5% of TTD capital raised, the smallest percentage since Viridian began tracking the industry. Similarly, transactions over $100M accounted for only 37.2% of funds raised, more than 20 points lower than in each of the last three years. Last year, there were 18 equity issues of $100M+ compared to 3 this year.

• The declines likely occurred for opposite reasons. Small companies have often been closed out of the equity markets, while larger companies, especially the tier 1 MSOs, are still flush with cash after record issuance in 2021. They don’t need to raise cash and are waiting for better market conditions. 

• Debt represents the most significant percentage of capital raised for the first time since we began tracking the industry. One size group stands out:  debt raises of $25-100M represent 26% of capital raised in 2022, more than twice the percentage of any previous year. Jumbo deals may be down, but mid-sized issues are thriving. Part of this increase is due to the increased role of the real estate sector lenders, including AFC Gamma (AFCG: Nasdaq), Chicago Atlantic (REFI: Nasdaq), NewLake Capital OTCQX,  and Innovative Industrial Properties NYSE.

• In this turbulent economic environment, investors should consider mid-sized debt issues. Many have equity kickers, which provide attractive upside potential with lower price volatility.

The Viridian Capital Chart of the Week highlights key investment, valuation and M&A trends taken from the Viridian Cannabis Deal Tracker.

The Viridian Cannabis Deal Tracker provides the market intelligence that cannabis companies, investors, and acquirers utilize to make informed decisions regarding capital allocation and M&A strategy. The Deal Tracker is a proprietary information service that monitors capital raise and M&A activity in the legal cannabis, CBD, and psychedelics industries. Each week the Tracker aggregates and analyzes all closed deals and segments each according to key metrics:

• Deals by Industry Sector (To track the flow of capital and M&A Deals by one of 12 Sectors - from Cultivation to Brands to Software)

• Deal Structure (Equity/Debt for Capital Raises, Cash/Stock/Earnout for M&A) Status of the company announcing the transaction (Public vs. Private)

• Principals to the Transaction (Issuer/Investor/Lender/Acquirer) Key deal terms (Pricing and Valuation)

• Key Deal Terms (Deal Size, Valuation, Pricing, Warrants, Cost of Capital)

• Deals by Location of Issuer/Buyer/Seller (To Track the Flow of Capital and M&A Deals by State and Country)

• Credit Ratings (Leverage and Liquidity Ratios)

Since its inception in 2015, the Viridian Cannabis Deal Tracker has tracked and analyzed more than 2,500 capital raises and 1,000 M&A transactions totaling over $50 billion in aggregate value.

Photo by Javier Hasse.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.