The cannabis debt bomb 💣

DEBT 💣
Cannabis balance sheets are riddled with debt. It’ll be hard to pay up

Driving the news: For companies in any ‘normal’ industry that’s not cannabis, there’s what my corporate finance professor tells me is an optimal capital structure. 

In simple terms, it’s the mix of debt and equity from outside sources that companies use to fund their operations, reduce their tax burdens, and grow their businesses. 

But maintaining an optimal capital structure is easier said than done in the cannabis industry, which is unlike any other because of federal illegality in the US — on top of strict regulations, high taxes, and still-elusive profits. 

Green Thumb Industries, I believe, was the only large, publicly traded multistate operator (MSO) to turn a profit this past quarter.

Cannabis firms are forced to borrow more, and at higher rates, than similar sized businesses with similar revenue in other industries. They’re what my corporate finance professor would call highly leveraged. And all that debt, given the risks of operating in a federally illegal industry and the resulting lack of lenders, is expensive. 

In other words, the chickens are soon going to come home to roost. 

Let’s see the evidence: Yesterday, we wrote about Eaze winding down its operations. The company, once valued at $700 million, was bought in a foreclosure sale after it defaulted on a loan to an investor.

And last month, Pelorus Fund, a lender, filed a complaint to put StateHouse, a California cannabis brand, into receivership. The company has about $123 million in debt, according to analysis by Viridian Capital, and about $123 million in assets. None of StateHouse’s lenders will likely get paid back in full, based on those numbers. WeedWeek has more on that story. 

Other prospective lenders are certainly aware of the risk, though that’s not stopping them from taking it. 

AFC Gamma, a cannabis lender, said earlier this week that it originated over $100 million worth of loans this year. 

And now: Cannabis investment firm FiSai wrote an open letter to executives at The Cannabist (formerly Columbia Care) over $50 million that FiSai lent the company and is owed by February 2026. 

FiSai is, in no uncertain terms, very publicly calling out The Cannabist management team.

What they’re saying: “[W]e would note that David Hart, currently serving as CEO, and Michael Abbott, currently serving as Chairman of the Board, have held key leadership roles since 2016 and 2012, respectively. Their tenure encompasses notable and repeated strategic failures,” the letter says. 

The failures include terminating a blockbuster merger with competitor Cresco Labs, selling assets to Verano, which FiSai says “appears to have been a reactive measure in the face of liquidity challenges,” and that The Cannabist’s financial performance is “consistently at the lower end,” of their competitors.

They say that the company has an over-leveraged balance sheet — remember our 101 on capital structure up top — and an underperforming stock. 

Why it matters: As Marc Hauser writes in his very good Cannabis Musings newsletter (and beat me to the punch on this topic), it’s less about The Cannabist specifically — it hasn’t yet defaulted on any of its loans — and has more to do with the looming threat to the entire sector.

The largest public MSOs expect a “maturity wall,” or the time a company has to repay its debts, of more than $3 billion (!) in 2026. It’s going to be a competitive market for The Cannabist and all MSOs to refinance their debt next year. 

It’s a lender’s market. Like sharks to chum, lenders will seek out spaces where they can attract the highest rates. It’s going to be tough for some companies to survive, and all this debt will continue to drag on the sector’s profitability.

There are some positives, though. GTI was able to refinance its debt at just over 10% — pretty cheap money for the industry.

And more: There’s also the hope that federal reform will spur more investment into cannabis. If cannabis is moved to Schedule III, the 280E tax, which prohibits companies that sell Schedule I or II drugs from deducting their business expenses, will be removed and free up a ton of capital.

And, if Congress passes the SAFER Banking Act, a bill that would allow cannabis firms to access the banking system like any other company, more banks will start to work with the industry and free up more sources of capital, though we’re not holding our breath for that. 

All that, plus Florida and other populous states legalizing cannabis, may change the financial trajectory of the sector. Then, cannabis capital structures will start resembling something more ‘optimal,’ as my professor would say. 

- JB

“That’s why I’m here. Because I think cannabis is one of the biggest opportunities for investors that exists today outside of things like AI,” Ross Gerber, the cofounder of investment firm Gerber Kawasaki, said at the Benzinga Cannabis Capital Conference in Chicago on Tuesday. 

Read more.

New York City launches CANNABIS NYC loan fund 🌿

New York City is launching a $2 million Cannabis NYC loan fund for social equity license-holders under the Conditional Adult Use Retail Dispensary (CAURD) program. The loans will be up to $100,000, and the fund will be administered by cannabis investment fund Tuatara Capital. Find the applications and more information here. Previous iterations of New York State’s CAURD loan programs have come under fire for terms more favorable to the lender than the license-holders.

California cannabis recall 🛑

West Coast Cure, a popular California cannabis brand, is voluntarily recalling a number of products including vape pens and pre-rolled joints in a sternly worded notice. You can see the list of products here. The recalls come after a big Los Angeles Times investigation into contaminated cannabis products. Stay safe, everyone. 

A few fun product launches today: 

New York cannabis brand Jaunty is releasing a new line of vaporizers with what the company says are “effect focuses,” by using minor cannabinoids.

Cannabis beverage brand Wynk is launching a cran-blood orange flavor of its infused beverage with 5 milligrams of THC and 5 milligrams of CBD.

California brand Punch Edibles & Extracts is launching new flavors and packaging for its Asteroids line of solventless hash gummies.

This map, from Pew Research, shows the locations of medical and recreational cannabis dispensaries in the US. Outside of Michigan, Colorado, and Oklahoma, most are concentrated along the coasts.

While we here at Cultivated don’t necessarily condone this behavior, we have to say, the image is hilarious.

Start low and go slow | The Joint Session Podcast 

NYC sheriff defends against allegations of office search, mishandling of cash | NY1

Newsom declared an emergency ban on these products. They're still in many shops. | SF Gate

Thinking about marijuana legalization | The Winchester News-Gazette 

Open letter response to the NY Times article, "as America’s marijuana use grows, so do the risks" | Doctor-Approved Cannabis Substack