In the early years, equity was essentially the only financing source, accounting for 81% of total capital raised in 2018-19. That made sense given the nascent nature of the industry, the lack of widespread public awareness of the business and the fact that most industry players had sharply negative cash flow and little cash-flow means to support debt.
But crashing stock prices in the second half of 2019 changed the landscape in lasting ways.
Between the first and fourth quarters of 2019, cannabis equity prices plunged by nearly 52%, leading to a sharp decline in equity issuance.
By the end of that year, public company equity issuance had essentially been squeezed out of the market.
Debt accounted for 74.5% of total capital raised in 2020, the first year in cannabis history that debt exceeded equity in capital raised.
That year also was the beginning of the trend toward straight debt with no conversion features or warrants, led by issues from Curaleaf and Cresco.
Newfound optimism as 2020 turned into 2021 regarding the prospects of federal legalization produced a 120% rally in cannabis stock prices, triggering the second big wave of cannabis equity issuance.
Public companies issued $1.2 billion of equity in the first quarter of 2021, a record at the time.
And with prices so high, why would anyone raise debt? Very few companies did.