There is an excellent article today in MJ Biz Daily on the cost of capital for different tiers of cannabis multi-state operators—MSOs. Remember, because cannabis is a Schedule One drug, cannabis companies are not able to rely on traditional lending resources. For the most part, banks will not do business with plant-touching cannabis companies. So, they often rely on private-lending facilities that come with more onerous terms and higher interest rates.
As the image below details, there is a meaningful difference between the rates top-tier MSOs pay versus smaller, less proven, less-liquid businesses. Green Thumb Industries (GTI) is the class of the sector and is paying a very-reasonable 7% on a recent loan. Mid-tier names like Ascend Wellness and Verano Holding are paying roughly 9%, while the smaller MSOs are getting pushed to the mid-teens.
While we always expect the larger, more liquid business to pay lower rates, this is exacerbated in the cannabis industry due to the restricted banking situation. If Vireo Health and GTI both turn to the debt markets for capital, Vireo’s interest expense will be about 2x what GTI pays. I am not aware of another industry with such a large disparity among credible companies.
It’s been a brutal few months for most cannabis stocks and with time frame for safe banking and up listing to major exchanges uncertain, we are likely to see more debt raises. You don’t need to just own the absolute biggest names, but you will want to be mindful of size, liquidity, revenue and credit-quality when evaluating the space.