Money is on the minds of many cannabis industry executives as many sources of capital have dried up this year and the marijuana trade is looking down the barrel of a possible recession.
This reality was reflected in the list of speakers at the Las Vegas cannabis conference MJBizCon this week.
“There is no doubt that there are significant headwinds. In the last three quarters alone, the Fed has raised interest rates by more than 300 basis points,” said Steve Ham, managing partner at Altmore Capital, who spoke at the conference on Tuesday. “It’s time to tighten our belts. You have to think about getting to the other side of the river. Inflation hits everyone.
On top of that, investors are increasingly savvy about the cannabis industry as a whole — and asking entrepreneurs harder questions than ever before, said Arun Kurichety, COO and General Counsel of Petalfast. , after a panel moderator cited a report that nine-figure capital cannabis increases are down 78% this year.
Which begs the question: where and how can cannabis companies get money to get by if they need it?
The answer: Wherever they can. And a lot of those available funds are convertible debt with onerous terms.
“A lot of the terms of the deal are much more difficult for the company, and lenders and investors have more ability to leverage,” Kurichety said.
This has led to less favorable deals for borrowers in the broader cannabis industry, many of whom are unable to repay expensive loans, he said.
But for some businesses, loans are still a better option.
“Debt is like dating, while equity is like marriage,” joked Sahar Ayinehsazian, a partner at law firm Vicente Sederberg, which opposes marijuana companies that sell marijuana. holdings for a short-term financial boost.
But, she admitted, equity buyers are much more readily available than well-structured loans.
Entrepreneurs can also take more creative approaches to accessing finance.
One option for cannabis companies that hold state or local licenses, Ham said, is to use the business license itself as collateral for a loan.
Other options include sale-leaseback agreements if a company owns property, noted Sherri Altshuler, a partner at Canadian law firm Aird Berlis.
And the Department of Energy oversees Property Assessed Clean Energy (PACE) funding loans, said Steve Lustberg, the managing partner of Upwise Capital, which has previously been operated by several major multistate cannabis companies.
What might not be a good idea, according to several speakers? Going public as a way to raise capital. This often creates more burdens that usually outweigh the benefits for marijuana businesses.
Industry Outlook
Most speakers were also pessimistic about the chances that federal reform legislation – specifically the SAFE Banking Act – will also open the financial floodgates for the sector, with most giving the bill at best a 50% chance of becoming law. in a close future.
“If we don’t get (the SAFE Banking Act), we won’t get anything for a while” from Congress on marijuana reform, predicted Colin Brown, chief legal officer of The Parent Company. “If it’s happening right now, it’s the worst possible time…with the economic backdrop we have. But beggars cannot choose.
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