facilities, which includes Aurora Sky, an 800,000 square foot production facility located in Edmonton, among other collateral.
The Aurora deal marked the first time a Tier 1 Bank provided debt financing in the cannabis industry, which is no small milestone as only a short time ago lenders were hesitant to be involved with the industry. This is, in part, because lenders were wary of the value of, and their ability to take adequate security, given potential unknown or untested regulatory roadblocks. Major institutions are now coming up with creative ways to secure collateral, and the willingness to do so by large players is expected to cause a ripple effect across other lenders as we move closer to legalization of the recreational market.
Alternative lenders such as credit unions have already entered the fray, including WFCU Credit Union, which recently provided Aphria Inc. (“Aphria”) with Twenty Five Million ($25,000,000.00) Dollars in debt financing secured against the real estate owned by Aphria as well as general security agreement against Aphria’s accounts receivables and inventory .
The coming wave of debt financing may be an incredible opportunity for both borrowers and lenders in the cannabis industry alike. Lenders can more confidently enter the burgeoning industry as the clarity around legalization increases and they can more comfortably take security against real property and inventory of cannabis companies. Borrowers will benefit by being given more access to much needed financing, and, as competition increases among lenders, at reasonable interest rates.
As the tide shifts towards debt financing, it will not be a question of whether institutional lenders, secondary lenders and cannabis companies benefit and profit, but a question of when and how much.
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