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ACKRELL
CAPITAL CHAPTER VI|_ Capital Markets for Cannabis Companies
In addition, an increasing number of direct lenders are participating in the private debt markets
for cannabis-related companies. These lenders represent an important capital source for the industry,
as typical forms of debt capital, such as bank financing, remain unavailable to most companies. As in
other industries, debt financing is typically available only to those companies having meaningful cash
flow or tangible assets to secure the debt. While the number of lenders is increasing, there is still a
relative scarcity of debt capital available to the cannabis industry, which can lead to a higher debt cost
of capital of 200-500 basis points or more for cannabis-related companies, as compared to companies
in other industries.
The following chart illustrates the type of debt that may be available to cannabis-related companies,
representative terms of such debt, and the types of companies that may be able to access debt in the
private markets.
Debt Financing Alternatives for Cannabis-Related Companies
Cost of Capital
Senior Low Double Digits Type of : Type of
Securitization Borrowers:
(if secured): \ Cultivators
Lease Land ( Extractors
Financing Buildings Dispensaries
Mid-teens Equipment j Product Manufacturers
AIR
Inventory
Convertible
Debt
Less Restrictive
= Final Thoughts
As stated previously, valuations and stock price fluctuations in the cannabis industry continue to be
driven more by expectations for the cannabis industry in general than by individual company funda-
mentals. Today, in the public markets, trading volumes are too low, trading prices are too volatile and
operating histories are too limited to place any reliance on current valuation levels in the cannabis
industry. We believe that this dynamic will continue until cannabis-related companies have matured
and start to realize meaningful revenue, profitability and other financial metrics that will allow inves-
tors to evaluate companies within the industry by more traditional methodology.
It is still too early to know how the cannabis industry or its sectors will be valued in the future. It
may come to pass that companies in the cannabis industry are valued comparably to public companies
in industries with similar characteristics, such as the alcohol, tobacco, pharmaceutical and consumer
© 2017 Ackrell Capital, LLC | Member FINRA/SIPC 135
HOUSE_OVERSIGHT_024771