Cash-Strapped Cannabis Firm Acreage Holdings Borrows $15 Million at Staggering 60% Interest Rate
New York-based cannabis firm Acreage Holdings announced Wednesday that it will borrow $15 million from an unidentified institutional investor at an astonishing 60% annual interest rate.
In order to obtain the short-term debt, Acreage put up assets in three states — Florida, Illinois and New Jersey — and its U.S. intellectual property as collateral, according to a news release.
The secured note will mature in four months and carries a $6 million default penalty. Acreage has the ability to “prepay the note without penalty or premium” after 90 days, which could leave the multistate operator on the hook for a minimum of $2.25 million in interest payments.
Acreage said it plans to use the funds for “working capital and general corporate purposes.”
It's worth noting that in Canada, where Acreage trades on the Canadian Securities Exchange, interest rates exceeding 60% are deemed criminal, illustrating just how starved the multistate operator is for cash at the moment.
The deal comes just two weeks after Acreage said it had negotiated a pair of agreements that would bring in a combined $60 million.
The majority of those funds will come via a standby equity distribution agreement with an unnamed institutional investor. Per the arrangement, Acreage will periodically sell up to $50 million of its class A subordinate voting shares to the unidentified backer.
The other $10 million will come via the sale of convertible debt bearing an annual interest rate of 15%. To secure the debt financing, Acreage put up its medical cannabis dispensaries in Connecticut as collateral.
According to public filings, YA II PN, Ltd., a hedge fund operated by Yorkville Advisors, financed the debt investment.
On its website, Yorkville notes that it utilizes “flexible investment structures,” including standby equity distribution agreements, to help fund companies in the cannabis sector (among others).
It’s unclear if Yorkville is also behind the $50 million equity distribution agreement, or if the firm has stepped up to provide the additional $15 million in debt financing.
Nevertheless, Acreage’s recent deals underscore the difficulty many cannabis firms are currently having to raise money amid industry headwinds and the COVID-19 pandemic. It also shows the lengths some are willing to go to continue fueling operations.
Acreage — which counts former House Speaker John Boehner and former Canadian Prime Minister Brian Mulroney as board members — lost $150 million in 2019, according to filings.
In addition to raising new working capital, Acreage has taken several steps to preserve cash and improve profitability this year, including canceling planned acquisitions, selling certain assets and scaling back its workforce.
After temporarily halting cultivation operations in Iowa in April, the company last week confirmed that it permanently shuttered the facility and relinquished its license.
In May, the firm sold a dispensary in North Dakota and undeveloped real estate on the island of Nantucket, in Massachusetts. One month earlier, Acreage canceled the $120 million purchase of Nevada’s Deep Roots Medical, LLC, and terminated an agreement to purchase a medical marijuana dispensary in Rhode Island. It also furloughed 122 employees.
At the time, Acreage chair and CEO Kevin Murphy said the COVID-19 pandemic played a role in the company’s decision to take “bold measures” to remain operational.
“Although we are facing difficult times, I remain optimistic about the U.S. cannabis industry and Acreage in particular,” he said.
Executive vice president Steve Hardardt also resigned in April.
Meanwhile, Bill Weld, the former governor of Massachusetts, also left the company’s board in February to challenge President Donald Trump for the 2020 Republican nomination. That effort ended in March, when Weld suspended his campaign.
Weld is currently suing Acreage, claiming that 625,000 shares were converted without his knowledge at a time when the company's stock was trading at C$1.98 per share (then an all-time low), according to Bloomberg.
Former TW Telecom CEO Larissa Herda also resigned from the board in March.
Recall that around this time last year, Canopy Growth Corporation paid Acreage shareholders $300 million ($2.63 per share) for the ability to wholly-acquire the New York-based company when marijuana becomes federally legal in the U.S. At the time the transaction was negotiated, it valued Acreage at $3.4 billion.