High prepayment penalties.
Cannabis lenders realize that debt costs for cannabis companies are likely to come down sharply post-legalization as traditional lenders enter the market. Accordingly, they are putting prepayment penalties in the loans. BAMM's deal has two levels of prepayment penalties. One is the explicit penalty which is 7% for prepayments during year two and then scales down. The second is the OID. Remember, BAMM only received 90% of the principal amount they borrowed, but any prepayments are at 100%. The total prepayment penalty is the difference between the 107% and the 90% - a pretty big hurdle to overcome before refinancing would make sense.
Cap Raises by Sector: Five of this week's eight capital raises were from the Cultivation & Retail sector, with one each from Hemp, Agriculture Technology, and Investments/M&A.
Mergers & Acquisitions
Transactional Activity: Four M&A transactions were completed this week, compared to zero in the prior-year period. We have tracked 189 transactions YTD in 2021, compared to 43 in the same period last year. Public companies were the buyers in 85% of 2021 deals YTD compared to 93% in 2020.
There have been 134 US targeted M&A transactions YTD with a record $5.3B in total consideration.