Although capital is becoming harder for US multi-state operators (MSOs) to access, the larger player are benefiting from declining interest rates on debt financings.
When compared to last year, the average interest rate has declined by several percentage points and large operators are benefiting from lower debt costs. The decrease has made it easier for these operators to expand their presence in fast-growing state markets and this is a trend that our readers should be aware of.
In a world that is focused on income equality and social justice reform, the interest rate trend in the cannabis sector is not in-line with this trend. While large scale operators are enjoying the declining cost of debt, there is an interest-rate gap that is forming between large operators and smaller businesses, including minority-owned companies.
During the last year, we have seen a significant increase in the number of former professional athletes that are levered to the cannabis industry. We hope the increase will raise awareness for minority-owned businesses which are primarily in the early stages of growth. Most of these operators needs to access capital to prevent a slowdown in growth and this presents a challenge to such businesses.
One of the negative trends that is associated with this theme is related to how owners of minority-owned businesses are selling equity (partial or full) in exchange for capital from private investors.
According to a study by MJBizDaily that analyzed recent debt financings for large and small US MSOs, smaller operators have receive annual interest rates of approx. 13%. This amount is a few percentage points higher than what larger-scale operators have received and the difference in the amount of the interest expense is substantial when the debt financing is above $50 million.
Some analysts attributed the declining interest rate trend to a combination of operating metrics and the perceived lower risk as the possibility of the end of federal prohibition in US seems to be more likely.
We are favorable on the lower cost of debt capital trend in the US and will monitor how the trend continues to benefit certain operators over the next year. If you are interested in learning more about US cannabis companies that are benefiting from this trend, please send an email to firstname.lastname@example.org with the subject “The Cost of Debt for US Cannabis Companies” to be added to our distribution list.
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