Debra Borchardt
It’s been well documented that equity capital raises in cannabis have withered on the vine. As stock valuations plunged – by as much as 90% in some cases – investors had little interest in getting more stock in a company.
In fact, according to Viridian Capital Advisors, which tracks deals in the cannabis industry, capital raises are off to a multiyear low. Year-to-date capital raises are down 85.3% from 2022.
Debt became the most common way to bring in more money to fund operations, with 90% of all capital raised this year being debt. But even that trend has wilted, with no deals over $100 million so far this year.
In addition, Viridian noted that debt likely is unsustainably high for many of the largest MSOs.
As more companies found themselves in dire straits, with several drowning in debt they couldn’t repay, the mood in the industry darkened.
But against this depressing backdrop, a surprising turn might be happening. At least five cannabis companies have recently announced equity deals, giving hope that there could be some green shoots on the capital front.
Green Shoots
While it may be too early to call an end to the bear market for cannabis, for the week ending June 10, cannabis equities moved higher by 3.54%. Some cannabis stocks put up big gains, such as Glass House Brands (OTC: GLASF), which rose 13.9%, and Schwazze (OTC: SHWZ), which was lifted by an 11% gain. Even Auxly Cannabis Group (OTC: CBWTF) scored a 34% increase in its stock.
More promising is that at least five companies announced new private placement investments centered on equity. It could be just irrational exuberance or investors taking a bet on some sort of legislation passing, but either way, it’s a definite positive move.
Here are five recent equity announcements in the market.
Ascend Wellness Holdings Inc. (CSE: AAWH.U) (OTCQX: AAWH)
Ascend announced a private placement offering that will raise an aggregate of $7 million in equity financing. The company plans to sell an aggregate of 9,859,155 shares of Class A common stock to a large existing debt and equity investor at a price of $0.71 per share.
Ascend said it would use the proceeds for potential acquisitions of debt or equity in, or the assets of, certain companies in the cannabis industry.
“We are seeing a lot of attractive acquisition opportunities that Ascend believes could be significantly accretive,” CEO John Hartmann said. “We are pleased to raise this equity from an existing debt and equity investor and appreciate their continued support of Ascend and our acquisition strategy.”
BZAM Ltd. (CSE: BZAM) (OTC: BZAMF)
BZAM closed its previously announced non-brokered private placement. The company (formerly The Green Organic Dutchman) issued 22,222,223 units at a price of C$0.225 per unit for gross proceeds of approximately C$5 million.
The company’s chair, Bassam Alghanim, purchased all the stock. The proceeds are expected to be used for general corporate and working capital purposes.
HEXO Corp. (TSX: HEXO) (Nasdaq: HEXO)
Hexo closed the first of two tranches of a non-brokered private placement consisting of the issuance of newly created Series 1 Preferred Shares to a single institutional investor. The first tranche generated $11.5 million in proceeds, and the second tranche will deliver $13.5 million.
The move comes as Tilray is close to acquiring Hexo after shareholders approved of the transaction last week.
Indiva Ltd. (TSXV: NDVA) and Canopy Growth Corp. (TSX: WEED) (Nasdaq: CGC)
Canopy, through its wholly owned subsidiary, Tweed, closed a $2,155,617 private placement into Indiva by Tweed. Tweed subscribed for 37,230,000 common shares in the capital of Indiva for an aggregate purchase price of $2,155,617 at a price per common share of $0.0579.
Indiva said it plans to use the net proceeds to satisfy its existing obligations to manufacture and sell Wana-branded products in Canada and for its costs and expenses related to the manufacture and supply Wana-branded products.
Bright Green Corp. (Nasdaq: BGXX)
Bright Green sold 3,684,210 shares of common stock and warrants to purchase 3,684,210 shares of common stock, at a purchase price of $0.95 per share and accompanying warrant. The gross proceeds are expected to be approximately $3.5 million before deducting the placement agent’s fees and other estimated offering expenses.
