The chart shows YTD capital raises by size and type of raise. Green bars show raises under $10M; brown bars are between $10-$25M; blue indicates $25-$100M, and red bars indicate capital raises over $100M. Within each color range, lighter tones indicate debt raises while darker tones indicate equity raises.
Less cannabis capital has been raised YTD in 2022 than in any previous year except 2020, the last “capital crunch.”
YTD, equity represents 48.9% of total capital raised, its lowest level in recent history.
The largest and smallest size categories show particularly pronounced declines. Equity transactions of under $10M accounted for 4.5% of TTD capital raised, the smallest percentage since Viridian began tracking the industry. Similarly, transactions over $100M accounted for only 37.2% of funds raised, more than 20 points lower than in each of the last three years. Last year, there were 18 equity issues of $100M+ compared to 3 this year.
The declines likely occurred for opposite reasons. Small companies have often been closed out of the equity markets, while larger companies, especially the tier 1 MSOs, are still flush with cash after record issuance in 2021. They don’t need to raise cash and are waiting for better market conditions.
Debt represents the most significant percentage of capital raised for the first time since we began tracking the industry. One size group stands out: debt raises of $25-100M represent 26% of capital raised in 2022, more than twice the percentage of any previous year. Jumbo deals may be down, but mid-sized issues are thriving. Part of this increase is due to the increased role of the real estate sector lenders, including AFC Gamma (AFCG: Nasdaq), Chicago Atlantic (REFI: Nasdaq), NewLake Capital (NLCP: OTCQX), and Innovative Industrial Properties (IIPR: NYSE).
In this turbulent economic environment, investors should consider mid-sized debt issues. Many have equity kickers, which provide attractive upside potential with lower price volatility.