The challenge for public cannabis companies is not only the amount of debt on their balance sheets but also the terms of said debt. Much of the debt issues to early-stage publicly traded companies contains convertible provisions with highly discounted conversion pricing. As such, the holders of such debt are converting at prices that are below market, causing downward pressure on stock prices, further dilution, and an overhang of a perpetual seller in the market.
The only ways to change this situation are to repay the debt before it is converted, to restructure the terms of the conversion to make them more manageable, or to simply take the burden of the debt and eliminate it through conversion.
What are your top sub-sectors in the cannabis space and why?
Cultivation & Retail
Cultivation and retail companies are looking to capitalize on the steady process of moving marijuana growth and sales “into the light”, in other words, the conversion of cannabis supply and demand from illicit businesses run largely by criminal empires to legitimate ventures that operate within the proper legal and financial frameworks. Cannabis use has been widespread in the U.S. for decades, but recent initiatives driven by popular support have instigated policy changes that have, in turn, led to the development of legal cannabis production and sales.
Numerous polls have cited the rising support of cannabis cultivation and sale, particularly for medical purposes. Furthermore, while politicians have been slow to adapt to the changing views of their constituents, the resulting tax revenues and other secondary effects such as reduced incidences of drunk driving and prescription drug deaths resulting from the loosening and/or removal of laws surrounding cannabis production and sale have increased momentum in legalization movements and have pushed legislators to reconsider their previously held positions on cannabis.
17