The Coming Tide of
Debt Financing in the
Cannabis Industry
Traditionally, most Canadian cannabis companies, and more specifically, federally licensed producers looking to increase capital have looked to one place equity financing. While companies in other industries are able to increase capital and grow by way of debt financing, this option did not exist for companies in the cannabis industry for a multitude of reasons. This included uncertainty surrounding legalization as well as the squeamishness of institutional lenders to get involved with the industry. Though cannabis companies have been able to raise capital through equity financing, it usually comes at the price of share dilution, which can be especially painful for founders and early shareholders.
As we move towards legalization this October, and the clarity that comes with it, it appears there is a shift in the industry toward debt financing as a strategy to increase capital, expand and in order to avoid traditional forms of financing used in the cannabis industry that may result in share dilution.
Aurora Cannabis Inc. (“Aurora”), one of Canada’s major licensed producers with a market cap currently over $5 million dollars, is an early mover in adopting debt financing as a strategy. On June 26th, 2018, Aurora and the Bank of Montreal (“BMO”) announced a $200 million dollar debt facility, with the potential to upsize to $250 million dollars. The loan will be primarily be secured by Aurora’s production
BY: WHITNEY ABRAMS & ETHAN EISEN MINDEN GROSS LLP
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