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As companies contend with the capital crunch that has hit the industry, we are seeing several different approaches to raising capital emerge, including sale/leaseback transactions, rights offerings, debt with warrants, and, increasingly, equity sales known as “at-the-market” programs (ATMs). Two companies announced ATMs this week, and we count now 5 Canadian LPs, 2 MSOs and a REIT that have put programs in place.
An at-the-market program gives companies the ability to raise money by selling stock in small increments over time as opposed to underwritten deals. In contrast to the underwritten deals, which include not only a large underwriting fee and typically a substantial discount to the market price but also often a stock selloff in advance of the deal being announced, the ATM sales carry a lower commission and have less market impact.
Based on the negative reaction to the two announcements last week, it appears that investors may be incorrectly viewing the ATM announcements as a signal of additional near-term equity sales, but both of these companies as well as the others have larger shelf registrations in place already that would allow them to price underwritten deals.
When a company is aggressively selling via the ATM, it will certainly weigh on the stock, as a buyer of stock directly from the company rather than through open market purchases means, by definition, one fewer buyers on the open market. As several companies have been quite actively selling through their ATM programs, investors may fear that any company with an ATM will be aggressive, when that is not necessarily the case.
In this environment, we find it prudent to have the flexibility that an at-the-market program can provide to cannabis companies. As we expect the capital crunch to persist for a while, we anticipate that we will see more companies embrace them. We think that investors should not necessarily penalize companies for having this tool in their capital-raising arsenal. Instead, it is more important to understand the timing of liabilities and the near-term cash flow from operations (or to operations) and to growth and maintenance capital spending.
For Investors looking to better understand the ongoing implications of the cannabis capital crunch and how different approaches to capital raising can affect an individual company, we discuss these in real-time for subscribers of 420 Investor.
With a physician-led team of more than 400 employees and with the recent appointment of Bruce Linton as Executive Chairman to spearhead the company’s strategic decision-making, capital markets activity and future partnerships, Vireo Health International is building the cannabis company of the future by bringing the best of medicine, engineering and science to produce high-margin, proprietary products.
Get up to speed by visiting the Vireo Health Investor Dashboard that we maintain on their behalf as a client of New Cannabis Ventures. Click the blue Follow Company button in order to stay up to date with their progress.
New Cannabis Ventures publishes curated articles as well as exclusive news. Here is some of the most interesting business content from this week:
- Exclusive: Accurate Cannabis Edibles Dosing Helps Sunderstorm Find Success in California
- Exclusive: American Cannabis Operator Index Outperforms the Broad Sector Again
- Aphria Diamond Secures New $80 Million Credit Facility
- Exclusive: Canadian Cannabis Licensed Producer Index Sinks 16% in November
- Exclusive: Multi-State Cannabis Operators Report Strong Growth as Earnings Season Ends
- Exclusive: The Global Cannabis Stock Index Loses 12% in November Despite Mid-Month Bounce
- Exclusive: This Hawaiian Medical Cannabis Leader Is Bringing Its Brand to the Mainland
To get real-time updates download our free mobile app for Android or Apple devices, like our Facebook page, or follow Alan on Twitter. Share and discover industry news with like-minded people on the largest cannabis investor and entrepreneur group on LinkedIn.
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Alan & Joel