January 14, 2025
As much as $3 billion in debt will come due for major U.S. cannabis operators by the end of 2026, a “wave” of maturities that could portend a significant shake-up in the regulated industry.
Most analysts contend that companies have enough time to craft solutions to refinance their debt on favorable terms.
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However, some factors not under the industry’s control – such as major federal or state reforms that could open new markets and ease operations for existing companies, or a total lack thereof – will also determine whether companies are forced to sell assets, disappear entirely or cede more control to their lenders, observers told MJBizDaily.
“It paints a concerning picture,” said Jesse Redmond, a California-based analyst and head of cannabis at Water Tower Research, an investment advisory firm.
“I think anyone investing in cannabis has to be concerned,” he added.
“I don’t know if it’s to the point where it’s dire or not, but it’s not obvious what’s going to happen” to some of the more leveraged companies.
And as a well-publicized letter to struggling multistate operator The Cannabist Co. from one of its creditors shows, some lenders aren’t waiting to impose demands.
Debt financing not unique but …
Subject to much heavier tax and regulatory burdens than businesses in other sectors, the $32 billion U.S. cannabis industry is still typical in at least one way: Marijuana companies raise capital by trading cash for an ownership stake (equity financing) or by obtaining loans (debt financing).
However, without access to traditional sources of capital, marijuana companies have commonly been more reliant on debt financing, according to Bloomberg Law.
That trend continued even with the advent of marijuana multistate operators trading on public markets, thanks in part to increasing interest rates and falling stock prices that left companies with improving credit preferring to secure loans rather than sell equity at what they might have perceived as a discount.
Debt financing – which eclipsed equity as the cannabis industry’s preferred source of capital in 2022, according to MJBizDaily – allows a company to obtain capital without ceding control of the company. That’s contingent, of course, on the loan being repaid or refinanced.
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It’s not extraordinary for companies to carry significant loan debt, even debt in the nine figures. (That’s distinct from the estimated $4 billion in delinquent payments and past-due invoices owed within the industry, according to Oregon-based Whitney Economics.)
It’s also typical for debtors to continuously refinance loans for years on end, as paying it all off “means having a bunch of cash lying around,” said Frank Colombo, who has followed the debt situation closely as a managing partner at New York-headquartered cannabis capital, M&A and strategic advisory firm Viridian Capital Advisors.
That leaves companies with two options once a loan matures: Refinance the debt or restructure the company.
“You refinance,” Colombo added. “Or you have a problem.”
And some over-leveraged firms have problems.
The impact on 280E
Estimates of how much debt is coming due in 2026 vary from as low as $2 billion, as Viridian’s Colombo pegs the figure, to as much as $3 billion, as noted in a September public letter to The Cannabist’s board from FiSai US Management, a Los Angeles-area, marijuana-focused investment fund that loaned the company $50 million.
But most of the loans maturing next year are held by a handful of companies: Five firms report more than $1.8 billion in loans coming due in 2026 on their publicly available earnings statements, according to quarterly reports filed in November.
They are:
Curaleaf Holdings with $460 million coming due in December 2026.
Cresco Labs, $400 million, August 2026.
Trulieve Cannabis Corp., $390 million.
Ayr Wellness, $358 million.
Verano Holdings Corp., $350 million, October 2026.
Analysts note that the companies all have significant presences in Florida, where an enormously expensive push to legalize adult-use cannabis – and open what would have been the fastest-growing new market in the country – failed in November.
That also reflects what some critics say is an overreliance in the marijuana industry on outside developments to meet earnings goals or fulfill other ambitious promises.
These include state and federal reforms including rescheduling marijuana under federal law and new state markets in populous, medical-only states such as Florida and Pennsylvania as well as – eventually – federal legalization and interstate commerce.
However, many of these companies are already banking on the tax savings they plan to realize when and if marijuana is moved to Schedule 3 of the Controlled Substances Act.
That would mean relief from Section 280E of the Internal Revenue Code, which prohibits cannabis businesses from claiming most business expenses on their federal tax returns.
But marijuana is still Schedule 1, barring the result of a highly anticipated U.S. Drug Enforcement Administration hearing scheduled to resume this month.
And the IRS has consistently said that 280E still applies.
Some observers have come to understand the insistence by MSO that they don’t owe taxes under 280E is another type of loan, one that might need to be repaid to the IRS with interest.
However the 280E situation is categorized, it reflects an ethos that an increasing number of investors and analysts say is risky and unreliable.
“Expecting things to change based on politics generally has never worked out for this industry,” Marc Hauser, the chief of staff at Las Vegas-based Jardin and a former deal and capital markets attorney, told MJBizDaily.
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Debt decisions
The Cannabist Co., formerly known as Columbia Care, also has $185 million in debt maturing in February 2026, as noted in a September public letter to its board from FiSai US Management which loaned the company $50 million.
That letter also critiqued The Cannabist’s reliance on last-second restructuring or outside political developments to boost its fortunes.
The letter mentioned the presidential election, rescheduling and the Florida legalization vote as “events with potential to materially impact” the firm’s access to capital and its ability to refinance its current obligations.
“A ‘pray and hope’ strategy that all these events go in the Company’s favor without engaging with creditors to explore contingency strategies is misguided and unacceptable,” the letter noted, in part.
In private conversations and on social media, many investors and regulated marijuana operators expect President-elect Donald Trump’s administration to be cannabis-friendly, though it’s far from clear what reform measures the once-and-future president might convince a partisan Congress to pass.
Viridian’s Colombo preached caution in his interview with MJBizDaily, saying that “it’s premature to panic” over the looming debt situation.
And some companies already have managed to refinance.
Ayr Wellness’ debt was supposed to come due in 2024, but the company managed to pull off a deal early last year to extend terms to 2026.
But that also meant accepting a higher interest rate as well as stronger lender control over the company.
That’s a reflection of the significant decisions looming for some companies, Water Tower’s Redmond predicted.
Solutions could include an uptick in merger and acquisition activity – though companies are unlikely to want to acquire underperforming stores or extra cultivation capacity when they have plenty of both in their own portfolio.
“If there’s no obvious way to grow revenue and you need more cash flow … your only option is to get leaner,” Redmond said.
But lenders are also in a bind. They generally don’t want to either own a borrower’s assets or take over the company.
In this way, everyone could be left holding the proverbial bag.
“It’s a pretty intractable problem, and there are no good solutions,” Hauser said.
“The only solution is legalization, and that’s not happening anytime soon.”
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