On Thursday, Cresco Labs (OTCMKTS:CRLBF) announced that it signed an agreement for a senior secured term loan for an initial aggregate principal amount of $100 million. The non-brokered credit agreement has a mutual option to increase the loan facility to a maximum of $200 million. Cresco Labs expects to complete the initial drawdown of $100 million by the end of this month. However, the loan is subjected to customary funding conditions.
Cresco Labs’s new secured loan
According to the press release, the loan arrangement is for an 18-month or 24-month term, which will depend on the lender’s option. For the loans made on the initial closing date, Cresco Labs will have to pay interest of 12.7% per annum for the 18-month loans and 13.2% per annum for the 24-month loans. The company has to pay interest quarterly with arrears.
Cresco Labs said that it will utilize the funds to expand its Illinois operations, complete its pending acquisitions, and focus on other strategic initiatives in key markets. A broad syndicate of lenders, which includes US-based institutional investors and members of the company’s management and board, agreed to provide the loan for the company.
Speaking about the new loan agreement, Cresco Labs’ co-founder and CEO, Charlie Bachtell, said, “Through this deal, we have diversified the Company’s funding sources, improved our cost of capital in a non-dilutive manner and given ourselves flexibility in a dynamic capital environment. As we enter 2020 and our business continues to increase its positive free cash flow, Cresco is well-positioned to continue growing its foothold in the most strategic cannabis markets in the U.S., while building the most important company in the industry.”
Investors might expect the loan to speed up the company’s pending acquisition of Tryke Companies and Hope Heal Health. So, the announcement about securing a new loan facility might have increased their confidence. On Thursday, Cresco Labs stock rose to a high of 8.66 Canadian dollars. However, the stock closed the day at 8.57 Canadian dollars—a rise of 3.3% from the previous day’s closing price. Despite the increase on Thursday, Cresco Labs has traded 4.0% lower since the beginning of 2020. The company has delivered lower returns than its peers and cannabis ETFs this year. During the same period, Charlotte’s Web (NYSEARCA:CWEB), OrganiGram (NASDAQ:OGI), and Curaleaf (OTCMKTS:CURLF) have returned 10.7%, 18.2%, and 10.1%, respectively. The ETFMG Alternative Harvest ETF (NYSE:MJ) has returned 6.8%. Read Is Cresco Labs a Good Bet in January? to learn more.
Analysts are bullish on the stock. Among the 11 analysts that follow Cresco Labs, three recommend a “stong-buy” rating, while eight have given a”buy” rating. None of the analysts recommend a “hold” or “sell” rating for the stock. As of Thursday, analysts’ consensus target price was 15.52 Canadian dollars with a 12-month return potential of 81.1%. Russell Stanley of Beacon Securities is optimistic about the stock. Read Why Beacon Securities Thinks Cresco Labs Is Cheap to learn more.