Some companies are better at raising money than others…

Having enough liquidity to survive a down market is important, and some of you may have seen the series I’ve been running on the subject over the past few weeks.

It’s an important topic because cannabis companies need capital to grow, but if that capital is too expensive or dilutes current shareholders too much, it makes it more difficult for current investors to gain a good return on their prior investments.

There’s a lot of long-winded lingo in the press releases about capital raises, so I want to break everything down so you know what is happening when you see one of the companies you own raising money.

Debt can also be called a loan, a credit facility, a bond, or any number of other things. And sometimes that debt can be converted to equity under some circumstances.

Equity is stock in the company; the same stock that normal investors buy.

A warrant is basically a long-term option. It represents the right to buy a share of stock now or in the future at a certain price.

Working from there, I’m going to take a deeper dive into Trulieve Cannabis Corp. (OTC: TCNNF), iAnthus Capital Holdings Inc. (OTC: ITHUF), and KushCo Holdings Inc. (OTC: KSHB) and show you if they are getting the capital they need to survive…

I want to show you why one of these deals is great, one is average, and one is a disaster…

Trulieve’s $60 Million Access

Trulieve Cannabis Corp. raised money in the public debt markets just recently.

The company raised $60 million at an interest rate of 9.75%.

The “real” interest rate was a little higher since some of the value was assigned to the accompanying warrants. As I said in a previous report, Trulieve issued warrants to purchase 1,560,000 shares at a 32% premium to the market price at the time the deal was priced.

Because it went to the public market, Trulieve gets the entire amount up front.

There is no financial backer exerting control over Trulieve.

That is good execution on raising money that will work out for the company and, most importantly, current shareholders.

A $100 Million Raise for iAnthus

iAnthus Capital Holdings Inc. announced a big financing plan on September 30 in partnership with Gotham Green Partners, a major cannabis financing firm controlled by Michael Gorenstein, the CEO of Cronos Group Inc. (Nasdaq: CRON).

iAnthus said it was raising $100 million, enough to complete the company’s current business plan until it is generating enough cash flow to finance itself.

That is definitely good, but it was an average execution on financing.

Why?

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There are several reasons.

First, the interest rate is very high (13%), and the term of the loan is short – only 18 months, though iAnthus can extend that payment date by another 12 months, for a total of 30 months.

Next, the notes are convertible into stock, which would be dilutive to current shareholders. The conversion price is 25% in excess of the market price at the time of the deal, which is pretty good.

But there were also warrants.

The price of converting those warrants was even higher than the conversion price of the debt, but there were a lot of potential shares issued for each warrant, which is further dilutive.

Most importantly, iAnthus only got $20 million of the $100 million total up front.

The rest will be issued by Gotham Green or others at a later date under terms which iAnthus did not disclose. Gotham Green did not insist on a board member, but the withholding of 80% of the announced amount of the loan obviously gives Gotham Green a big influence over the company.

In better times this would be bad financing, but in this difficult market it was average.

KushCo Drops the Ball

KushCo apparently couldn’t raise debt at any fair price and had to issue shares on September 16.

The financing that KushCo did was a surprise, since it had previously announced that it had a debt deal just a month previously. And the terms of its equity issuance were harsh.

It issued nearly 20% of the company as new shares at a big discount to the then-current prices and another 20% of the company in the form of warrants right at the then-current share price.

That means that 40% of the company has been created at that day’s stock price or less.

And it put that 40% out into the market, where the buyers immediately started selling, sending down the stock price.

That’s bad financing in any market.

Take care,


Greg Miller

Executive Director, National Institute for Cannabis Investors

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Comments

13 responses to “Trulieve Receives a Top Grade for Raising Money”

  1. I was suprised and confused by kushes angel , don’t like it but what truleave and kush co have in common is ?? Truleave relies on kush kush needs nothing from anyone except there business in which kush works hand in hand with state law makers and now the fda on packaging and labeling which changes every other year . With kushes Corning of the market by wat of the largest problem counterfeit products soon as the fda steps in they require one thing , it like when you open a bottle of Pepsi there is no doubt that is what is in the can kushes share price is a steal I do not see true lie either share price being capable of doubling anytime soon.
    Thanks
    Rob H

  2. Hi Greg, I am a heavy investor in ionic brands, any chance of them coming out of this vape crisis, don’t they have a coffee paten that could help them out

  3. Does the addition of Paul Penney of RiverForce Partners to Kushco’s Advisory Board help or indicate what may be in store for Kushco? M

  4. GREG—This discussion of developing funds is interesting and is more that a little disappointing to me. I have considerable funds invested in your company because I believed you when you said you had the best handle on Cannabis companies and, now you tell me that IAnthus and Kush are lousy investments and are probably going to be on the chopping block . Then I received another message extolling the virtues of two CBD companies but won’t tell me who they are unless I invest further.

  5. On a different subject-What in the world is happening to Charolette’s Web??
    It continues to go down. Is this a fantastic time to buy more or danger sign of worse to come?

  6. When I look at my NICI investments, they are ALL bleeding red (losing money from my purchase price). I am a lifetime founding member and just found an additional charge on my credit card from NICI and I have no idea what it’s for. All they seem to want to do is sell you more tools so you can lose more money. I have never been so disappointed in an organization. I can make these kind of bad decisions on my own. I hope and trust things will turn around soon.

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