Economic headwinds in the industry are causing cannabis companies to make changes to their financing strategies.
The news comes as cannabis capital raises are down 63.1% so far this year despite M&A movement soaring, according to a report by Viridian Capital Advisors. The cash crunch illustrates the rising stakes for those vying to survive in a tightening landscape.
Agrify (Nasdaq: AGFY) attributed its recent procurement of a $35 million-dollar loan to a “challenging” operating environment in the industry, while XS Financial cited near-term pullback in financing.
Agrify obtains $35M financing
“It is imperative for us to align our strategy, resources, and execution plan with the new realities of the market,” said Raymond Chang, chairman and CEO of Agrify.
Chang said the alteration had been a top priority for the company, “and we are pleased to be able to move forward with additional flexibility to manage our business, conserve cash, and pursue a variety of compelling growth opportunities with fewer restrictions.”
Agrify will pay down a portion of the outstanding balance on the original note and exchange the remaining balance for a new $35-million-dollar note.
In addition to the significantly reduced principal balance, the new deal removes or modifies certain financial covenants. The new note will have no required amortization payments on the principal balance for three years and offers a company option for early repayment.
The deal includes a new warrant to purchase 14,227,643 shares of common stock. Additionally, Agrify will exchange the warrant to purchase 6,881,108 shares of common stock issued under the prior loan for a new warrant with the same number of underlying shares with a reduced exercise price.
“All of these modifications should make it easier for us to navigate through these turbulent times as we look forward to rebounding strongly from the temporary challenges facing the entire industry,” Chang added.
XS Financial closes $24M deal
XS Financial closed on a $24 million line of credit with Needham Bank committing $20 million and acting as the administrative agent. XS Financials’ existing $4 million line of credit with an FDIC-insured bank will be retired, and the same bank will contribute $4 million in the new loan.
“With many capital sources in the industry experiencing a near-term pullback in financing, we are thrilled to continue funding our target borrowers at scale for their critical expansion projects,” XSF CEO David Kivitz said.
XSF fully retired its $15 million line of credit with the Garrington Group concurrently with the closing of this loan.
The new loan has a term of two years, expiring in August 2024. Loans made under the line of credit will bear interest at an annual rate equal to the Wall Street Journal Prime rate plus 1%, with a floor of 6%, and may be prepaid with no penalty at any time.
“This credit facility is a strong indication of James’ and our lenders’ ability to offer credit solutions tailored to the unique needs of a company and underscores the strength of our nationwide banking platform in the fast-growing cannabis market,” Needham Bank CEO Joseph Campanelli said.
IM Cannabis issues financing
IM Cannabis also said that it will issue $5 million worth of nonbrokered financing – similar to a stock split. The company intends to use the proceeds from the offering for general working capital purposes.
Following the deal, the company may issue up to 10 million common shares at a price of 50 cents per common share. The deal is expected to close on or about Aug. 22.
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