Cannabis Musings - July 7, 2025
It's hard out there for an MSO.
Friends – we’re lucky to have picked up a plethora of new readers recently, so I wanted to say hello, introduce myself, and give you a sense of what you’re in for.
Hi. I’m Marc Hauser. I’ve been in the licensed cannabis industry for about seven years now (which makes me both a newbie and a grizzled old-timer) as a lawyer, consultant, and executive. I’ve been a deal and capital markets lawyer for about 27 years, including 15 years as internal deal counsel at Equity Group Investments, a private investment company founded by the late Sam Zell. I teach cannabis law at UNLV and Northwestern. I also write this newsletter.
These Cannabis Musings, which have been going out weekly(ish) for over six years, are my ongoing attempt to make sense of an industry that defies logic and reason, with a particular focus on law and capital markets. Comedy relief comes in various forms – delightfully chronicling the extended failures of SAFE(+R) Banking, forcing readers to understand arcane legal concepts like the dormant Commerce Clause, delving into overzealous press releases, dreaming of someday owning a food truck serving (THC- or CBD-) knishes, and the abundant use of Yiddish. Thanks for joining us.
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Last week, TerrAscend, one of the large US MSOs, announced that it is going to exit the Michigan market later this year, selling off dispensaries, cultivation facilities, and related assets. This came as a surprise, and also brought back some memories that tell a story of US licensed cannabis.
TerrAscend’s foray into Michigan started in early 2022, when it closed on the $545 million acquisition of Gage Growth Co. This was a very big deal at the time, because cannabis equity capital markets had long shut down by that point, and dealmaking was fairly anemic. Michigan – Gage’s primary market - was still ascendant as a relatively new licensed cannabis state (by the end of 2023, it was reportedly the second largest in the US; growth slowed in 2024; and now, like other mature states, growth has stagnated and prices have plummeted). Gage was already a publicly-traded company, so TerrAscend acquired Gage through a stock swap and gave the MSO a turnkey entry into a hot market.
Going back further, Gage was notable for two things in particular. First, Bruce Linton, ex-CEO of Canopy Growth, one of the biggest Canadian licensed producers, became Gage’s Executive Chairman in 2019. This was a big deal, because Linton had only then recently been fired from Canopy Growth, which was known for its multibillion-dollar investment by multinational beverage company, Constellation Brands, and its $3.4 billion acquisition of US-based Acreage Holdings. Those were heady days in US cannabis.
Second, Gage was known for pulling off a $50 million equity financing in January 2021, two years after the cannabis equity gravy train shut off. It did so through a Reg A+, Tier 2 offering, which was very novel and very clever (which included $20 million of participation by JW Asset Management, the investment firm behind TerrAscend). An outgrowth of the 2015 JOBS Act under the Obama administration (which gave this obscure rule some chutzpah), Reg A+ offerings let companies sell up to $75 million of stock to retail investors, and, if they want, list that stock on an exchange (i.e., go public), without much of the mishigas of a traditional IPO. Its ideal use is crowdfunding. What was great though, from a capital markets lawyer and nerd perspective, was that Gage made public filings, since its stock then traded on the Canadian Securities Exchange, and they filed things like their marketing agreements with Cookies. Pure gold.
The sale of Gage to TerrAscend two years after this offering was an impressive exit for the Gage team at roughly 5x Gage’s revenues (although not quite as impressive as the sale of Grassroots to Curaleaf in 2019 for $875 million, or the sale of Cura Partners to Curaleaf in 2019 for nearly $950 million, or Canopy Growth’s original deal in 2019 (it was a good year to sell) to purchase Acreage for $3.4 billion). Now, three years after the purchase, it’s unfortunately yet another illustration of the rise and fall of US cannabis fortunes. Even as robust a market as Michigan can’t overcome the long-term challenges of cannabis economics, and more recent markets like New Jersey, once touted as the industry’s next savior, are starting to show signs of struggle. One day’s prospect is another day’s writedown.
On a related note, US MSO Ayr Wellness is back in the news because they missed an interest payment on their bonds (notes). We’ve talked before about Ayr’s Herculean efforts to restructure their balance sheet over the past few years, since they can’t file for bankruptcy and clean things up the usual way. Saddled with debt, they’ve been talking to their senior noteholders for a while now, who recently gave the company some more time to negotiate a deal (known as a forbearance, basically agreeing to not sue or foreclose for a period of time). Apparently, they didn’t reach a deal, because Ayr didn’t make its scheduled interest payment on those notes, which triggered an event of default. As is typical, the indenture (basically the loan agreement) governing those notes gives Ayr a 30-day “grace period” to “cure” the default by making the interest payment. So, now they’re sort of living on borrowed (pun mostly intended) time, but it’s during this grace period when deals with lenders usually get cut, particularly when filing the company for bankruptcy isn’t an option.
What will happen? My guess is that Ayr and the noteholders will agree to trade the debt for equity, taking over a large portion of the company. That’s not investment advice, but it’s what Ayr did in late 2023, and is probably preferable to letting those noteholders file suit and take the equity the hard way.
At a macro level, these moves can be viewed as a long-term reckoning with the exuberance of the first wave of US licensed cannabis investment and growth, fueled first by cheap equity, and then too much debt for an industry with constrained cash flow. Borgen macht zorgen (“Borrow causes sorrow”). Although we’ve seen some large companies go away, many have survived through financial restructuring in order to keep fighting another day. We’re only going to see more of this as the Massive Miasma of Monetary Maturity (i.e., lots of cannabis debt coming due in the next few years) gets closer.
Be seeing you.
© 2025 Marc Hauser. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form. The foregoing represents my own views and not those of Jardín or anyone else who hires me.