It illustrates the complexities of cannabis debt financing and why a transaction's actual cost is often quite different from the announced interest rate.
It contains both explicit and unstated prepayment penalties that show that cannabis lenders are fully aware that cannabis company costs of debt are likely to fall significantly as federal legalization develops.
The Deal Structure is somewhat complicated (as reported in the company's 8-K of 7/19/21)
Borrower: Body and Mind Inc. and key subsidiaries, which are guarantors.
Amounts: $6.67 million drawn at closing with a $4.44 million delayed draw term loan that must be drawn before 12/1/21
Coupon: 13% annual rate, payable monthly.
Maturity: 7/19/25
Original Issue Discount (OID) 10%
Warrants: a total of 8 million warrants representing approximately 30% coverage, broken into two sets: 4.8 million warrants with a strike price of $0.4 issued immediately and 3.2 million warrants with a strike price of $0.45 placed into escrow and released to the lender upon takedown of the delayed draw facility. Both sets of warrants have four-year maturities
Prepayment penalties: Non-call for 1st year, 107% call premium in year two, scaling down to par after that
Security: collateral interest in all personal property and assets with selective carve-outs and pledges of the stock of all material subsidiaries
Agent fee: $100,000 total, $66,667 immediately and $44,444 at drawing of delayed draw facility
Effective Cost of the Deal