A $40-million debt financing, one of the largest to date in the cannabis space, is a strong positive signal for Cronos Group (Cronos Group Stock Quote, Chart, News: TSXV:MJN), says GMP Securities analyst Martin Landry.

This morning, Cronos Group announced it had secured a $40-million debt financing from Romspen Investment Corp. to help finance its construction of its 315,000-square-foot expansion of its “Peace” facility.

“Given the speed at which we anticipate payback of investment in the new Peace facility, we prioritized accessing the debt markets to fund this domestic expansion. We always look for ways to enhance shareholder value, and we’re pleased to be able to work with Romspen again to deliver that value,” said Cronos CEO Mike Gorenstein.

Landry says this is a positive development as its alleviates the company’s near-term financing pressure.

“In addition to CAPEX associated with the retro-fitting of Cronos’ existing facilities at Peace Naturals, we estimate the company will require ~$60m to fully fund its planned expansion activities at the site,” the analyst says. “Hence, with only $15m in cash at the end of Q1/17, today’s debt financing announcement significantly alleviates any near-term financing pressure for Cronos. We view the structure of the financing with Romspen positively as its pre-payment flexibility provides optionality for Cronos to potentially replace the debt in the future with less onerous financing forms should the company so choose. As one of the largest debt-based financings to date in the Canadian cannabis space, we believe the announcement signals a strong vote of confidence in Cronos, as well as the potential of the sector overall.”

In a research update to clients today, Landry maintained his “Buy” rating and one-year price target of $3.75 on Cronos Group, implying a return of 62.3 per cent at the time of publication.