Could it be a win-win deal?
An increasing number of investors – including mainstream investment banks new to cannabis – have begun seeking out cash-strapped marijuana companies with the aim of pumping money into them to provide a financial lifeline.
The investments offer the distressed companies a chance to get back up on their feet.
In return, investors get the opportunity to take a financial stake in a company, restructure it and put the business on the road to recovery – all with the aim of making a profit on the investment.
The investment stake can take the form of equity or debt.
Investors can brand themselves as “lenders of last resort” that can go into cash-strapped companies and restructure them so as to avoid a fire sale of distressed assets and survive, said Rod Stephan, a partner at New York-based Altitude Investment Management.The fresh investor interest offers struggling marijuana companies an alternative form of financing at a time when more traditional forms of MJ funding – including private offices and venture capital firms – have dried up.
Many cannabis companies are finding themselves in distress as their revenue is not keeping up with their expenses, pushing them further into debt and not having the benefit of bankruptcy protection under federal law.
“Astute market players can carefully assess equity opportunities, or they can go into debt (transactions) at a slightly lower return but where things are secured by the assets of the company,” Stephan said.
Published: March 05, 2020
Founder & Interim Editor of L.A. Cannabis News