How the cannabis sector is grappling with a debt avalanche

The cannabis industry is facing a financial reckoning, with $6 billion in debt maturing by the end of 2026.

The top five borrowers account for $3.4 billion of the debt, including major players like Curaleaf, Ayr Wellness, Trulieve, Cresco Labs and Verano Holdings.

As the clock ticks, the question looms: How will these companies navigate this financial storm to avoid collapse?

Despite its financial challenges, the cannabis industry remains a significant economic force, generating $32 billion in revenue and employing more than 400,000 people in 2024.

It also contributed $4.4 billion in taxes in states where cannabis is legal.

Because cannabis businesses don’t have access to traditional sources of capital, they are more dependent on debt financing, according to Bloomberg Law.

But now, many marijuana businesses are burdened by expensive capital structures, making debt restructuring critical.

According to Bob Finley, a partner at CFO consulting and board advisory firm FLG Partners, the key to survival lies in early action, strategic planning and collaboration with experienced partners.

“This is going to involve a significant investment of time and legal expenses,” Finley said. “Get some experts who have been through it before.”

The cannabis industry’s debt crisis is a ticking time bomb.

Verano Holdings, for instance, has $403 million in debt, with $350 million due in October 2026.

In the first half of this year, the company burned $19 million in cash, making it a prime candidate for early debt negotiation.

During Verano’s second-quarter earnings call, Chief Financial Officer Rich Tarapchak said the company is in proactive debt refinancing discussions ahead of the October 2026 due date from its current term loan.

“We continue to explore optimal uses of cash, along with opportunities to reduce our debt, cut costs and strengthen the balance sheet on an ongoing basis,” Tarapchak said.

Finley said that negotiating a refinancing deal is beneficial to both the company and its lenders.

“There is a mutual advantage for borrowers and lenders to come to a rational solution instead of letting the debt time bomb go off. In that situation, both parties lose,” Finley said.

Debt restructuring offers a path forward for many marijuana companies, which no longer have large capital expenditure needs and can focus on managing cash flow.

“This is a unique moment where investors are saying, ‘I can be more aggressive because cash burn is more manageable,’” said Anthony Coniglio, president and CEO of Connecticut-based NewLake Capital Partners, an internally managed real estate investment trust.

Cresco Labs, for example, recently closed on the refinancing of its $360 million debt. The new $325 million senior secured term loan has a 12.5% interest rate and matures on Aug. 13, 2030.

“This transaction is another milestone in our disciplined approach to capital management,” Cresco CEO Charlie Bachtell said in a statement after the deal closed.

“We have strengthened our balance sheet and removed near-term refinancing risk. With this foundation in place, we can remain focused on executing our growth strategy.”

Other companies with debt coming due have taken a different tack.

Multistate operator Ayr Wellness, for example, had $368 million in debt maturing in 2026.

In July, the New York-based company announced a restructuring deal that will see it sell off its licenses in eight states to satisfy lenders before winding down the remainder of its operations.

It previously announced that it would sell 97 stores in eight states.

Coniglio said it’s important for cannabis companies to demonstrate that they have cash flow so that investors can reasonably expect the business will pay them back.

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“If you can’t convince them that you’ll be able to pay them back or refi them out, you’re very limited in what you can do to stave off foreclosure,” Coniglio said.

“Ayr had so much debt it didn’t have a lot to offer bondholders. The management team ran out of runway. Cresco had a better balance sheet and cash-flow profile.”

Margaret Jackson can be reached at margaret.jackson@mjbizdaily.com.