Marijuana-company debt surging along with shares

Marijuana mania is spreading from stocks to debt.

While none of the big cannabis companies have issued an outright bond yet, several have sold convertible debt and investors are lapping it up.

Aurora Cannabis Inc.’s $230 million of five-per-cent unsecured convertible debt due 2020 is trading at about 113 per cent of face value while Canopy Growth Corp.’s $600 million of 4.25-per-cent convertibles due 2023 are trading around 150 per cent, according to two people familiar with the notes who requested anonymity because the matter isn’t public. Supreme Cannabis Co.’s convertible bonds announced on Wednesday are trading a little over par while Organigram Holdings Inc.’s convertibles are listed at 130 per cent.

Most players in these notes are retail investors, as well as some convertible arbitrage players and U.S. hedge funds and boutiques, according to one of the people.

The gains are bucking a rout in global government bonds spurred by concerns over rising interest rates and outpacing the iShares Advantaged Convertible Bond Index Fund, which has returned 2.6 per cent this year.

Pot assets are soaring with Canada set to legalize recreational weed on Oct. 17 and acceptance of the drug spreading. The BI Canada Cannabis Competitive Peers Index has doubled in the past 12 months.

Tilray Inc. the world’s largest publicly traded marijuana company, announced plans Wednesday to raise US$400 million to expand its coffers through a private placement of convertible bonds. Nanaimo, British Columbia-based Tilray, which has a valuation of about US$13.5 billion, said the interest rate on the senior notes, due 2023, will be determined at the time of pricing and will be convertible into cash, shares or a combination of cash and shares, the company said.