Cannabis companies secure fresh funding deals as investors wade back into capital markets
Marijuana businesses have raised hundreds of millions of dollars in recent months, a trend that is expected to continue as an investment dry spell that began late last year appears to be easing.
Investors have shown renewed interest in U.S. cannabis companies after they were designated “essential” businesses during the coronavirus pandemic by most states, allowing them to keep their doors open.
In addition, marijuana companies have more shown fiscal discipline by cutting costs.
The renewed flow of investor money – demonstrated by a flurry of funding deals over the past several weeks – has been crucial for cash-starved cannabis companies.
Marijuana investors stopped writing checks late last year because many companies were spending vast amounts of money to gain market share but failed to show a profit. That caused their stock prices to crater.
“Had they not been able to access capital, they would have been out of business by now,” said Robert Hunt, principal of California-based investment group Linnaea Holdings.
“Now, they’ve lived to fight another day.”
Raises hot in August
In August, cannabis companies raised nearly three times the amount raised through equity deals in July, according to figures provided to Marijuana Business Daily by New York-based Viridian Capital Advisors. (See chart above.)
Debt deals, on the other hand, were nearly nonexistent in August.
Of the $2.6 billion raised in the first half of 2020, about 99% of it went to North American cannabis companies, Viridian’s data shows.
The first-half haul was down sharply from nearly $8 billion a year earlier, when investors were more willing to pump money into marijuana businesses.
Investment dollars have recently come from family offices, established business executives such as former Starbucks CEO Howard Schultz and institutional investors that include the largest pension fund in the United States, the California Public Employees’ Retirement System, or Calpers.
In addition, mutual fund powerhouse Putnam Investments has owned about 5.4 million shares of Arizona-based marijuana company 4Front Ventures in recent months, according to Yahoo! Finance. (Investopedia reported the Putnam investment. )
Companies that have raised money include ancillary/technology firms such as Oregon-based Dutchie, plant-touching businesses such as Jushi Holdings in Florida and real estate investment trusts, or REITS, including California-headquartered Innovative Industrial Properties.
In addition, many publicly traded marijuana companies whose stocks were hammered in 2019 have seen a rebound in their prices after remaining open during the pandemic.
“Even though all of the headwinds still exist, the belief is now they’re solvable because they’re starting to see decent returns,” Hunt said.
More disciplined approach
One reason cannabis companies have been able to attract funding is because they are much more disciplined in controlling costs than they were during the first wave of investments about four years ago, according to Viridian President Scott Greiper.
“The unbridled and undisciplined pace of M&A activity from 2016 to 2019 is over,” he added.
The firms receiving the funding are using the money to serve existing customers and expand as new opportunities arise in states with growing marijuana markets.
Some investors, meanwhile, are targeting acquisitions in the cannabis world with hopes of picking up bargains after the stock price crashes of 2019.
Last year was “brutal” for marijuana stocks, with many of them losing 70% of their value, Greiper noted.
While cannabis stocks have bounced back, many are still priced 25% below where they were at the beginning of the year, he said.
In the past 18 months, roughly $3.3 billion has been raised by special acquisition companies, or SPACS, to buy cannabis operations, according to Greiper, “as institutional investors recognized the opportunity to acquire distressed/discounted assets in the industry.”
Over the past several months, marijuana funding deals include:
- Dutchie, an online ordering platform for cannabis retailers, raised $35 million from a group of investors that included rapper Snoop Dogg’s Casa Verde Capital, NBA star Kevin Durant’s Thirty Five Ventures and former Starbucks CEO Schultz.
- Ascend Wellness Holdings, a New York-based multistate operator, closed a $68.2 million funding round with plans to use $41 million of it to expand its operations.
- Multistate marijuana and hemp operator Jushi Holdings increased a debt financing announced in late July by roughly $18 million to a total of $33.3 million, citing strong demand from shareholders and management.
- Innovative Industrial Properties (IIP), the nation’s largest cannabis real estate investment trust and the only MJ REIT that trades on the New York Stock Exchange, raised $370 million “over the last three months to support our long-term tenant partners and their continued expansion initiatives, while forging additional partnerships with the top-tier operators in the industry,” IIP Chair Alan Gold told analysts on Aug. 6 after the release of the company’s second-quarter financial report.
- Florida-based Springbig raised $11.5 million in a Series B round. The company’s marketing platform is used by 1,400 marijuana retailers across the U.S.
- Chicago-based Fyllo completed a Series A2 round that brought in $10 million, increasing its investment total to $26 million
- LeafLink, a marijuana industry wholesale inventory and ordering platform, raised $250 million in a credit financing deal to help provide liquidity to the cannabis supply chain. The New York-based company said its supply-chain financing arm closed the senior secured credit facility with a private commercial lender.
- Seattle-based marijuana research company Headset raised $3.2 million as demand for its services soared during the COVID crisis.
Meanwhile, the nation’s largest pension fund, Calpers, almost quadrupled its investment in Tilray by purchasing another 160,500 shares in the British Columbia, Canada-based cannabis company in the second quarter, according to a document filed with the U.S. Securities and Exchange Commission.
Tilray halved its losses in the second quarter.
Paul Smithers, president and CEO of IIP, recently told Marijuana Business Daily he is “grateful for the consistent, long-term support of our stockholders,” which allowed the REIT to raise money during the pandemic.
“In light of the current extremely challenging macroeconomic environment, we were thrilled to execute on that capital raise and continue to support this industry’s growth and success,” Smithers said.
Marijuana Business Daily Senior Reporter John Schroyer contributed to this report.