Struggling In a Boom
These days, it’s hard to turn a corner in New York or Los Angeles without walking smack into a cloud of pungent marijuana smoke. This can create the impression that the industry is booming — both on the coasts and throughout much of the rest of the country where recreational use is now legal.
The reality is very different. Marijuana startups, big and small, are burning through cash as they struggle to grow their business, and investors are bracing for a potential wave of bond defaults.
Nearly a decade after the first recreational dispensaries opened in the US, weed companies are facing intense competition as states issue more licenses. Meanwhile, roadblocks to accessing many traditional financing and banking options remain because marijuana is illegal federally.
“When you put it all together, an economy that’s not going great, the industry not doing great and lack of progress in Washington, my base case is that that’s a set for accidents to happen,” said Frank Colombo, investment banker at cannabis investment firm Viridian Capital Advisors.
Some of the industry’s bigger operators are now tipping into financial distress. Trulieve Cannabis bonds due 2026 change hands for 68.5 cents on the dollar, while rival Curaleaf has 8% notes trading at 78.5 cents. It cost Ayr Wellness a steep 12.5% annually to borrow in 2020. That bond too has slumped.
Florida-based Trulieve is now winding down operations in California, Nevada and Massachusetts. The retrenchment comes after once-coveted licenses to operate in states that permit recreational marijuana became unlimited, boosting competition and cutting profits.
“Without the scale or size in those states, it doesn’t make sense to continue to build out in certain states,” said Scott Fortune, an equity analyst at Roth Capital Partners.
Curaleaf, headquartered in Wakefield, Massachusetts, is the largest retail dispensary in the US, and took on debt to fund acquisitions. Now, it’s looking to trim its operations and has exited multiple states.
And Miami-based Ayr Wellness faces one of the industry’s nearest-term debt tests. It has more than $200 million of bonds due at the end of 2024 that Fortune said it may struggle to address. Rising interest rates, high taxes and a lack of access to traditional banking systems gives companies like Ayr fewer options.
“The theme right now is everyone’s working with their debt holders to extend their original term without trying to refinance these at higher rates. We’ve seen that across the board,” Fortune said.
H/T: Bloomberg.com
You can view the whole article at this link Weed Companies Face Rising Distress After the High
