If it were like most companies on the losing end of a boom and bust cycle, Schwazze could just turn to the U.S. bankruptcy court to keep its creditors at bay while renegotiating its debt. But unlike most businesses, its product — marijuana — is still illegal in the eyes of the federal government.
That disadvantage will make it harder for Schwazze and other cannabis companies to win concessions from lenders just as a wave of debt that the industry borrowed in recent years to expand in states where weed is legal comes due. The biggest companies, those that operate in more than one state, have as much as $6 billion in debt maturing next year, according to Beau Whitney, chief economist at Whitney Economics, which specializes in the cannabis market.
The reckoning comes as the industry has failed to turn legal weed into reliable profits. In 2022 more than 42% of dealers reported making a profit, according to a survey by Whitney. By last year, the number had dropped to about 27%. Some who can't consolidate will fail and go out of business. Many will be forced to refinance their debt at higher interest rates and onerous contractual covenants.
"There is a huge debt bubble that could have a significantly negative impact on the cannabis industry if not addressed," Whitney said. "Refinancing this cycle will be at much higher interest rates and the businesses will not have the cash flow to manage it."
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