How the cannabis industry fights debt avalanche

The cannabis industry is facing financial valuations, with debt maturing by the end of 2026.

The top five borrowers accounted for $3.4 billion in debt, including major players such as Curaleaf, Ayr Wellness, Trulieve, Cresco Labs and Verano Holdings.

As the clock hits, the question is approaching: How will these companies avoid this financial storm to avoid a collapse?

A challenge department

Despite financial challenges, the cannabis industry remains a significant economic force, generating $32 billion in revenue and hiring 400,000 people in 2024.

In a state where marijuana is legal, it also pays $4.4 billion in taxes.

According to Bloomberg Law, cannabis businesses rely more on debt financing because they don’t have access to traditional sources of capital.

But now, many cannabis businesses are burdened by expensive capital structures that make debt restructuring crucial.

According to Bob Finley, a partner at CFO consulting firm and board consulting firm FLG Partners, the key to survival lies in early action, strategic planning and collaboration with experienced partners.

“It will involve a lot of investment in time and legal spending,” Finley said. “Get some experts who have experienced it before.”

“Debt Time Bomb”

The debt crisis in the cannabis industry is a ticking time bomb.

For example, Verano Holdings has $403 million in debt and will be $350 million in October 2026.

In the first half of this year, the company burned $19 million in cash, making it a leading candidate for early debt negotiations.

During Verano’s second-quarter earnings call, Chief Financial Officer Rich Tarapchak said the company was proactive in debt refinancing discussions following a maturity date to current maturity loans in October 2026.

“We continue to explore the best uses of cash, as well as opportunities to reduce debt, cut costs and strengthen balance sheets,” Tara Parker said.

Finley said negotiating a refinancing agreement is beneficial to the company and its lenders.

“Borrowers and lenders can come up with a reasonable solution instead of letting the debt time bomb go away. In this case, both sides lose.”

The way forward

Debt restructuring provides a path forward for many cannabis companies that no longer have huge capital expenditure needs and can focus on managing cash flows.

“It’s a unique moment for investors to say, ‘I can be more aggressive because the cash burn is easier to manage,” said Anthony Coniglio, president and CEO of Newlake Capital Partners, an internally managed real estate investment trust.

For example, Cresco Labs recently shut down its refinancing of its $360 million debt. The new $325 million senior guarantee term loan has an interest rate of 12.5% ​​and matures on August 13, 2030.

“This transaction is another milestone in our disciplined approach to capital management,” Cresco CEO Charlie Bachtell said in a statement after the deal ended.

“We have strengthened our balance sheet and eliminated the risk of near-term refinancing. With this foundation, we can focus on executing our growth strategy.”

Other companies that deal with debts have adopted different attitudes.

For example, multi-state operator Ayr Wellness has $368 million in debt in 2026.

In July, the New York-based company announced a restructuring agreement that would see it sell its licenses in eight states to get lenders to meet the rest of their business to meet lenders.

It previously announced that it would sell 97 stores in eight states.

Coniglio said it is important for cannabis companies to prove that they have cash flow so investors can reasonably expect the business to be paid off.

“If you can’t convince them that they can repay or repay it, then there are things you can do to avoid foreclosure,” Coniglio said.

“Ayr has too much debt and there isn’t a lot to offer for bondholders. The management team ran out of the runway. Cresco has better balance sheet and cash flow profile.”

Margaret Jackson can be reached Margaret.jackson@mjbizdaily.com.