Who’s the next Aurora? Debt due near term is equity

As cannabis company fundamentals weaken and capital gets tighter, common equity investors need to recognize the possibility of major dilution from the equitization of debt that is due soon. This raises the cost of equity for any companies with debt.

The convertible repricing by Aurora (TSX: ACB) and the new convertible announced by The Green Organic Dutchman (TSX: TGOD) highlight a larger truth about capital structures amid stressed fundamentals and markets: Debt becomes equity and dilutes existing equity holders. 

Short-term debt and the debt due in 2020-2021 are the most concerning for equity holders today, as it will be difficult to refinance amid very skeptical capital markets.

Below is a list of our comp table companies with debt, highlighting short-term debt (debt due within 12 months of the last filing) and debt due in 2020 and in 2021.

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