Limited by state equity provisions, Missouri operators are making debt deals

Josh Bruyere, Cultivation Tech for SINSE Cannabis, part of Beleaf Medical. (Provided)

Lenders and equity investors are capitalizing cannabis companies in the “Show-Me” State of Missouri that have demonstrated the ability to build out initial cultivation operations. 

Funding, say operators and industry observers, is going to expand or complete cultivation build outs for a medical market with more than 122,000 card holders and only twenty-one of sixty licensed cultivators certified by Missouri regulators to grow grass. 

Further, a looming September 30 deadline to obtain state approval to operate could result in consolidation as licenses awarded in January 2020 from a controversial scoring system that are not yet operational could be revoked.

“It’s crunch time,” said Chris Dussold, managing partner of St. Louis-based Avail Professional Services, a finance consultancy that has worked with approximately fifty license-holders in the state. “I definitely see capital markets loosening while mergers and acquisitions activity is strong.”

While equity investments in Missouri are somewhat constrained due to laws requiring majority ownership to be from in-state investors, debt deals are available to actively growing companies. 

“Having projects underway is more appealing to lenders,” said Jim Vigland, comptroller with Earth City-based BeLeaf, a vertically-integrated operator with five dispensaries in the state.

BeLeaf recently secured debt financing to “accelerate” the development of approximately 10,000 square feet of cultivation space on top of its existing grow facilities. 

“Getting started is the hard part,” he said. “Giving lenders a timeline you can stick to is more appealing to them.”

While existing lending rates for cannabis startups are “a tough pill to swallow” given the “higher risk premium”, Viglandwl said that route was preferable to selling stock to investors. 

“Expensive debt can still be cheaper in the long run compared to issuing more equity and diluting your shares,” he said.

The upside could be high for all involved, said Dussold.  

“Lenders are smart,” he said, adding that he is seeing both debt and equity deals happening in the state. “They are looking at risk in any startup, not just cannabis. They understand the time value of money. They understand that the sooner the capital can get into the facility and build it out, the sooner it can grow.”

While Covid-19 and capital constraints delayed the launch of many cannabis startups in Missouri, operators say adhering to requirements imposed by state regulators pose additional challenges. 

“The state is being a little too strict on certain aspects of the process,” explained Jason Bach, general manager of Revival Ninety Eight, a Springfield-based dispensary that plans to open later this year. Revival Ninety Eight is part of a vertically integrated group owned in part by former St. Louis Rams star defensive tackle Grant Winstrom. Bach, who during the onset of Colorado’s medical program more than a decade ago sold weed by the pound directly to medical dispensaries, said Missouri’s more rigid procedures can loosen up a bit.

“They are a little too intense in wanting to know exactly how everything is going to be run,” he said. “They should have just put in more general guidelines.”

Adds Viglund, who previously served as a financial investigator in the Colorado Department of Revenue’s Marijuana enforcement division, “while many (Missouri) companies are doing this for the first time, so is the regulatory body.” 

Multiple out-of-state equity investors queried by Grown In about Missouri say that while they continue to look at opportunities, there is still too much uncertainty in the state and they can afford to wait things out a bit.

“The residency requirement and status of that market relative to other opportunities out there has prevented us from investing,” said Michael Gruber, managing partner at Chicago-based Salveo Capital. “But if the right opportunity emerged we would get involved.”