Positive U.S. pot news spurs rush to raise cash

A double dose of good news this past week sparked a rapid response from the marijuana industry, with multistate operators moving to ramp up their businesses, and fast.

Last Wednesday morning, when the results of Georgia's Senate race were turning in favour of Democrats and New York Governor Andrew Cuomo proposed to legalize marijuana in his state, Curaleaf Holdings Inc. executives suddenly realized the company could benefit from some extra cash. They went to bankers and lawyers around 11 a.m., and in less than 24 hours, the company had raised more than US$200 million by offering more stock on the Canadian Securities Exchange.

“It was very unexpected in Georgia. That's why we pulled the trigger as fast as we did, to prepare for what we think will be a very dynamic 2021,” chairman Boris Jordan said in a phone interview.

He anticipates Curaleaf will want cash for acquisitions as the industry consolidates faster than expected. He also sees states under more pressure to allow medical and adult use following the nation's shift toward the Democratic party. In New York alone, Jordan said Curaleaf needs to quadruple in size to meet demand.

While the industry had been expected to gain momentum this year, developments have moved faster than expected. For now, the STATES Act, which would give states more legal authority to determine their own marijuana rules, is seen as the most likely federal regulation to pass soon — as opposed to the MORE Act, which would fully decriminalize cannabis. The STATES Act could be approved in either the second half of 2021 or the first half of 2022, according to Cowen analyst Vivien Azer.

Jordan, meanwhile, said he previously didn't expect the MORE Act to be passed until the next administration, but he now thinks it could happen by the end of President-Elect Joe Biden's four-year term.

Cannabis stocks have surged on the brighter prospects. An industry index rose 16 per cent last week.

Green Thumb Industries Inc., one of the largest U.S. multi-state operators, also sees expansion accelerating as a result of the recent news, chief executive Ben Kovler said in a phone interview. With potential access to capital markets coming sooner than expected, Kovler said the company is thinking about refinancing its current US$100 million in debt, which carries a 12 per cent interest rate.

“We could create an extra US$100 million out of thin air by refinancing at 6 per cent,” he said. This could then be invested back into the business and potentially boost the share price. Staffing up is also on the agenda. “We hired over 1,300 people in 2020, and we'd expect that to be bigger in 2021,” Kovler said.

Green Thumb is also intensifying efforts to register on U.S. exchanges, Kovler said. Companies have largely tapped markets in Canada rather the U.S., where they have been shunned for concerns about legal risks due to federal prohibition. But Kovler said views are changing on this.

“I don't believe there's a legal issue that prevents this,” he said. “I think the NYSE and the Nasdaq should list cannabis companies. Otherwise it's a massive wealth transfer to Canada.”