Multistate operator Cresco Labs Inc.
The Chicago-based firm will use the capital to fund an ambitious expansion into Illinois, close pending acquisitions, and seize growth opportunities in strategic markets. It expects to draw down the initial $100 million by Jan. 30, and it has the option to increase the loan to $200 million.
At a time when capital is tough to secure in the cannabis industry, Cresco has demonstrated the soundness of its operations by securing a substantial loan from creditors.
Investors should be happy they found a source of capital to fund their aggressive growth strategy without the need for dilution.
While they had substantial liquidity already and operations that were properly right-sized, Cresco clearly doesn’t want to take their foot off the gas pedal.
The Origin House acquisition will inevitably require a capital injection throughout the first few quarters of operations as cost-reduction synergies are realized. Further, with access to new dispensaries, substantial investments in inventory will be required.
Cresco is also likely investing heavily in cultivation capacity in Illinois. With the state supply-constrained and Cresco holding three state licenses, they are in an excellent position to grow market share.
As we discussed in a recent interview with CEO Charlie Bachtell, Cresco is also likely sizing up opportunities in Florida after the cancellation of the VidaCann acquisition. This capital may help them with potential future acquisitions in that space.
Overall, we see this as an excellent move for Cresco Labs. They are now capitalized on near term growth plans and positioned to maintain their standing as one of the top U.S. MSO’s.
A broad syndicate of lenders, including U.S.-based institutional investors, has provided the loan, according to Cresco. Each commitment may be for an 18-month or 24-month term, at the lender’s option.
The 18-month loans will bear interest at a rate of approximately 12.7% per annum, while the 24-month loans will bear interest at around 13.2%, payable quarterly in arrears.
Cresco has already raised almost $100 million through sale-leaseback transactions on its three cultivation facilities in Illinois, so it is flush with cash. However, it needs a significant war chest as it attempts to grow its market-leading position Illinois, which has just ushered in a new era of adult-use cannabis sales.
Statewide sales of legal marijuana totalled $19.7 million in the first 12 days, although only a handful of dispensaries are operational right now. The nascent market is dogged by the same supply shortages seen elsewhere, but it is tipped to evolve into a multibillion-dollar industry.
“As we enter 2020 and our business continues to increase its positive free cash flow, Cresco is well-positioned to continue growing its foothold in the most strategic cannabis markets in the U.S., while building the most important company in the industry,” said co-founder and chief executive Charlie Bachtell.
He added that he was pleased to improve the firm’s access to capital in a non-dilutive fashion.
Cresco has licenses to operate in 11 states, with 18 production facilities and 31 retail licenses, which represents an impressive geographical footprint, while its operations also look solid.
The company recently completed a $416 million deal to purchase Origin House, the market leader in California. This deal would add $22.8 million in pro forma revenue to Cresco’s $36.2 million based on 2019 Q3 financials.
It now boasts the largest distribution footprint of any U.S. cannabis company, with listings in more than 800 dispensaries across 11 states.
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