The Canadian marijuana stocks on our list are highly levered compared to the rest of the industry
SmallCapPower | June 27, 2018: On May 26, 2018, Aurora Cannabis (TSX:ACB) announced it received a $150M term loan and $50M revolving credit facility from BMO, a tier 1 Canadian bank. This marks the first major debt financing from a bank of this kind in the cannabis industry. As a result, we decided to examine the capital structures of other cannabis companies to see how leveraged the industry is. Generally, a manageable amount of debt can be an inexpensive source of growth capital and a sign that a company is taking full advantage of the opportunities available to it. However, too much debt can signal mismanagement and be a major source of risk to an investment. The Canadian marijuana stocks we have uncovered today have the greatest amount of debt, as a percentage of their capital structure. The median debt/capital ratio for cannabis companies with a market cap greater than $100M is ~14%.
Golden Leaf is a vertically integrated “seed-to-sale” cannabis company. It produces dried flower, concentrates, and infused cannabis products. The Company considers its distribution capabilities to be its core differentiator, focusing on dispensaries, e-commerce, and home delivery. Golden Leaf operates 10,425 sq. ft. of growing space with planned expansion to begin in 2019.
- Market Cap: $131.0 Million
- Total Debt to Total Capital: 63.5%
- Total Debt to Total Equity: 174%
- YTD Total Return: -39%
Hiku Brands is a Canada-based licensed producer of medical marijuana. The Company was formed from the merger of DOJA Cannabis Company and Tokyo Smoke. Hiku has entered into an agreement to merge with WeedMD, subject to a shareholder vote on July 11, 2018. The combined company plans to produce 56,000 kg/annum by mid-2019.
- Market Cap: $216.0 Million
- Total Debt to Total Capital: 53.9%
- Total Debt to Total Equity: 117%
- YTD Total Return: -36%
Sunniva is a Canada-based cannabis producer of medical marijuana. The Company is vertically integrated with operations divided between production, clinics, and paraphernalia. SNN currently has more than 100,000 patients registered in its clinics and recently entered a deal with Canopy Growth Corp to supply 45,000 kg/annum for two years to Canopy’s distribution network. Sunniva is currently expanding its existing facility and constructing a second that it hopes will yield a combined 200,000 kg/annum by 2020.
- Market Cap: $249.5 Million
- Total Debt to Total Capital: 47.3%
- Total Debt to Total Equity: 90%
- YTD Total Return: -12%
Newstrike Resources is a Canada-based company, growing 2,500 kg of cannabis annually in 7,600 square feet of growing space. The Company’s Brantford facility is designed to simulate natural conditions of sunlight, temperature, humidity and wind. The Company is currently retrofitting an existing greenhouse to increase capacity to 25,000 kg/year by 2019.
- Market Cap: $331.5 Million
- Total Debt to Total Capital: 42.6%
- Total Debt to Total Equity: 74%
- YTD Total Return: 7%
Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.
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