Curaleaf Secures $300 Million in Capital
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Curaleaf Secures $300 Million in Capital

Chief Financial Officer Neil Davidson discusses the company’s loan and shares how Curaleaf was able to exceed its initial goal of $275 million.

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January 27, 2020

Curaleaf Holdings, Inc., a vertically integrated cannabis operator with licenses in multiple U.S. states, announced earlier this month that it had closed on a loan for $300 million in capital, which will be used to strengthen the company’s balance sheet and liquidity, according to Chief Financial Officer Neil Davidson.

Before transitioning to the cannabis industry, Davidson worked nearly 20 years in the regulated gaming industry, where capital was much easier to come by.

“Access to capital to build casinos was pretty abundant, and the reality is that access to capital for a lot of businesses in the U.S. is pretty abundant—you have mainstream banks that are willing to provide that,” Davidson told Cannabis Business Times. “For the cannabis industry, typically you have to turn to family offices and hedge funds, so your cost of capital is a little bit higher, and a lot of times, those types of investors are looking for some type of equity. So, what’s important about this particular transaction is it was a first, we think, in the industry, and it was a non-dilutive transaction, so there was no equity component.”

The financing was secured from a syndicate of lenders and matures 48 months from closing. The proceeds will be used to refinance existing debt, pay transaction fees and expenses stemming from previously announced acquisitions, and fund capital expenditures.

Curaleaf originally sought to raise $275 million, but Davidson said the company simply had more interest from investors, which helped it reach the $300 million mark.

“We looked for the deal and the investors that we thought matched up with us best,” he said. “I’m really happy with the group of lenders that we ended up with. I think they also understand our business well, and I think we’re going to be good partners.”

The company underwent a process traditional in other markets, where executives first put together a deck that explained the company’s operations and objectives.

“For us, it was important to talk about cash flow and to talk about both the balance sheet and the growth trajectory of Curaleaf,” Davidson said. “You then go out on a roadshow and present that deck to investors, either at a forum or in their offices, and just gauge interest. Then, there’s a diligence process where you have a number of those investors that are interested, and you spend a lot of time getting to know them, and they’re getting to know our management team.”

Ultimately, Curaleaf narrowed down the financial commitments of the interested parties and closed the transaction on Jan. 15.

“For us, it’s continuing to build our existing business,” Davidson said. “It’s also expanding some of our cultivation capacity. We’re also going to repay some existing debt that’s out there, and then we do have a couple of pending acquisitions. While most of the consideration is equity, there is a small cash component on the grassroots acquisition, so some of those proceeds will go to close our grassroots transaction.”

The capital markets will continue to shift as the cannabis industry evolves, he said, and as investors continue looking for long-term opportunities, it will ultimately decrease the cost of capital in the industry.

For now, Davidson added, investors remain focused on cash flow, as well as solid business plans.

“They want to know that you have a business plan that makes sense, that’s achievable,” he said. “They want to get to know your management team, so I’d say, be patient. … Be realistic about what your business can achieve. Be forthright about challenges in your business, and make sure everybody understands, in particular, the cash flow and the capital needs. Have a clear understanding of what you’re going to do with the money that you raise. I think those are questions that typical investors, particularly on the debt side, will ask, and you should have a thoughtful answer to those."