Friends,



As companies contend with the capital crunch that has hit the industry, we are seeing several different approaches to raising capital emerge, including sale/leaseback transactions, rights offerings, debt with warrants, and, increasingly, equity sales known as "at-the-market" programs (ATMs). Two companies announced ATMs this week, and we count now 5 Canadian LPs, 2 MSOs and a REIT that have put programs in place.



An at-the-market program gives companies the ability to raise money by selling stock in small increments over time as opposed to underwritten deals. In contrast to the underwritten deals, which include not only a large underwriting fee and typically a substantial discount to the market price but also often a stock selloff in advance of the deal being announced, the ATM sales carry a lower commission and have less market impact.



Based on the negative reaction to the two announcements last week, it appears that investors may be incorrectly viewing the ATM announcements as a signal of additional near-term equity sales, but both of these companies as well as the others have larger shelf registrations in place already that would allow them to price underwritten deals.



When a company is aggressively selling via the ATM, it will certainly weigh on the stock, as a buyer of stock directly from the company rather than through open market purchases means, by definition, one fewer buyers on the open market. As several companies have been quite actively selling through their ATM programs, investors may fear that any company with an ATM will be aggressive, when that is not necessarily the case.



In this environment, we find it prudent to have the flexibility that an at-the-market program can provide to cannabis companies. As we expect the capital crunch to persist for a while, we anticipate that we will see more companies embrace them. We think that investors should not necessarily penalize companies for having this tool in their capital-raising arsenal. Instead, it is more important to understand the timing of liabilities and the near-term cash flow from operations (or to operations) and to growth and maintenance capital spending.



For Investors looking to better understand the ongoing implications of the cannabis capital crunch and how different approaches to capital raising can affect an individual company, we discuss these in real-time for subscribers of 420 Investor .