- Ended 2019 with an $8.8 million portfolio of secured credit facilities, increasing to $19.7 million subsequent to year end, plus $5.0 million of follow-on commitments
- $10.2 million in cash as of April 9, 2020, and no debt
TORONTO, ONTARIO / ACCESSWIRE / April 13, 2020 / Trichome Financial Corp. (formerly 22 Capital Corp.) (the "Company" or "Trichome Financial") (CSE:TFC) today announced its financial results for the year ended December 31, 2019. The complete Financial Statements and Management's Discussion and Analysis for the year ended December 31, 2019, along with additional information about the Company and all of its public filings are available at www.sedar.com.
"Trichome Financial continues to execute on its strategic priorities of building out a portfolio of credit-based instruments to serve the financing needs of the cannabis sector. With industry fundamentals pointing to a positive inflection point over the coming quarters and capital availability very limited, we entered 2020 with a robust pipeline of actionable opportunities. Market volatility as a result of COVID-19 has resulted in a substantial increase to our deal pipeline. Current market conditions are also providing opportunities for Trichome Financial to leverage its expertise and capital into corporate restructuring investment opportunities," said Michael Ruscetta, Chief Executive Officer.
"With the launch of Trichome Private Credit in the near term as well as the potential for separate vehicles to target restructuring opportunities, we are seeking to bolster our available funds and further develop our cannabis specialty finance platform without the need to raise additional equity capital. In addition to these off-balance sheet vehicles, we are also working to establish a credit facility that would leverage Trichome Financial's balance sheet and be accretive to shareholders," commented Michael Ruscetta.
Business highlights
Highlights during the year ended December 31, 2019:
- On October 4, 2019, became a public company under ticker symbol "TFC" and closed a private placement raising proceeds of approximately $16.5 million;
- Entered into gross loans and commitments in excess of $23.0 million in the form of secured credit facilities to five counterparties;
- Received $5.4 million in repayments against those facilities, with the termination of $8.2 million of associated commitments;
- Entered into the Company's first receivables financing facility for up to $5.0 million; and
- Began trading on the CSE, with successful listing to allow the Company to expand its addressable market for credit solutions to include the cannabis sector in the United States.
Highlights subsequent to the year ended December 31, 2019:
- Entered into a senior secured term loan with Heritage Cannabis Holdings (CSE:CANN) for a total commitment of up to $6.7 million with an initial tranche of $4.875 million;
- As a syndicate member, entered into a senior secured term loan with Cresco Labs Inc. (CSE: CL), with Trichome Financial advancing US$2 million as part of a US$100 million total loan;
- Advanced a $1.0 million senior secured term loan to Hello Cannabis, an established retail operator, with the potential to increase the loan by an additional $1.25 million;
- Closed a $550,000 add-on financing to Good Buds to facilitate the purchase of equipment to satisfy end-market demand;
- Entered into a consensual restructuring with James E. Wagner Cultivation Corp. (TSXV:JWCA) in which Trichome Financial has agreed to provide up to $4 million in debtor-in-possession financing and act as a "stalking horse" bidder in the CCAA process;
- Signed multiple term sheets to extend secured debt financing to a variety of counterparties in both the premium cultivation and retail segments of the cannabis industry;
- Advancing the launch of Trichome Financial Private Credit Fund (the "Fund"), the Company has incorporated Trichome Financial Cannabis Private Credit GP Inc. (the "GP"), Trichome Financial Cannabis Manager Inc. and formed a Limited Partnership between the Fund and the GP; and
- Increased loan principal advanced to $19.7 million plus $5.0 million in commitments, with cash and cash equivalents on hand of $10.2 million as of April 9, 2020.
Outlook
The current business environment in the cannabis sector, while uncertain, continues to be highly favourable for Trichome Financial as it has a unique business model that benefits from both the structural, long-term growth of the global cannabis industry as well as periods of market volatility when investor confidence wanes. Since the middle of 2019, a series of events have contributed to creating a negative feedback loop for investor confidence in the cannabis sector. More recently, the effects of COVID-19 and measures being taken to suppress it have exacerbated the operating and capital plans of many participants in the cannabis sector. The potential trends for Trichome's business model include:
- An increase in the number of companies in need of Trichome Financial's solutions, including term debt, receivables financing, and capital for recapitalizations;
- An increase in overall borrower quality as a result of being able to select from a larger pool of opportunities;
- Improving risk-adjusted returns, with both increasing contractual returns as well as higher warrant or equity coverage at more attractive valuations; and
- An ability to negotiate favourable structural enhancements on transactions that serve to protect Trichome Financial's capital.
As financial distress in the cannabis sector continues to mount, Trichome Financial is dedicating increased attention to opportunities where it can leverage its expertise and play active roles in the restructuring process. Such roles may include providing debtor-in-possession financing, exit financing, acting as a "stalking horse" bidder, or otherwise acting as a sponsor of a recapitalization transaction.
Trichome has raised gross proceeds of approximately $31.8 million to construct a portfolio of diligently underwritten and structured income generating credit investments. To date, Trichome has closed fourteen credit transactions to ten unique counterparties, with six of those loans having been repaid.
As at December 31, 2019 the par value of loans outstanding was $8.8 million. Subsequent to year end, the par value of loans outstanding increased to approximately $19.7 million with $5.0 million of unfunded commitments. As of April 9, 2020, Trichome had approximately $10.2 million in cash on hand. The weighted average effective interest rate of the portfolio is approximately 15.2%, excluding warrants, bonus shares or royalties.
Interest revenue is expected to grow commensurately with further deployment of the Company's cash into income-generating credit investments. This amount could be partially offset by any prepayments, early terminations, or arrears. Total cash-based operating expenses are estimated to be approximately $2.1 million on an annualized basis, which could increase by approximately $0.7 million if annual bonus payments are merited. Management expects that contractual payments will offset cash-based operating expenses. Additional consideration in the form of warrants, bonus shares or royalties may contribute to overall profitability. Modest increases in the operating expense base to continue the buildout of Trichome Financial's infrastructure may be warranted to the extent that the capital base managed by the Company increases, either through the management of third-party fee-paying assets or by adding balance sheet leverage.
The significant costs incurred in 2019 to become publicly traded, including $1.3 million in non-cash listing expense and $0.4 million in legal and transaction costs, will not continue in 2020 and beyond. No significant capital expenditures are required in order for Trichome to execute on its business model. Management believes that the proceeds from the disposition of warrants and shares, fee income from managing third-party assets, the accretive effect of adding portfolio leverage, and the potential to launch complimentary business lines has the potential to increase overall profitability.
Financial results for the year ended December 31, 2019
For the year ended December 31, 2019, interest revenue increased to $1,264,563, as compared to $22,534 for year ended December 31, 2018. This is the result of the par value of total advances increasing over the course of the year by $14.5 million, from $0.5 million as of December 31, 2018.
Trichome Financial realized an adjusted loss of $1,283,608, as compared to $775,999 for the year ended December 31, 2018. Offsetting the increase in interest revenue were increases to operating expenses related to hiring employees, leasing office space, insurance, and expenses incurred to perform due diligence on new loans, such as legal, professional, and travel costs. Adjusted loss is calculated by excluding certain non-cash and non-recurring items from net loss as calculated under IFRS.
Cash and cash equivalents totaled $20.9 million as of December 31, 2019, compared to $13.8 million on December 31, 2018.
| December 31, 2019 | December 31, 2018 | |
| Interest revenue | $ 1,264,563 | $ 22,534 |
| Total net and comprehensive loss | (5,793,751) | (2,212,340) |
| Non-recurring and non-cash items | 4,510,143 | 1,436,341 |
| Adjusted loss | $ (1,283,608) | $ (775,999) |
| Active loans as at December 31, 2019: | Market segment | Maturity date | Coupon Interest rate | Effective interest rate1 | Loan principal | Committed | Fair value of warrants or equity held4 | |
| JWC - Initial loan | Premium cultivator | 2/19/2021 | 9.3% | 13.9% | $ 3,500,000 | $ - | $ 3,725 | |
| JWC - Tranche 1 | Premium cultivator | 11/6/2021 | 9.3% | 13.3% | 2,850,000 | 6 | 1,150,000 | 341,085 |
| Good Buds 1 | Premium cultivator | 9/1/2020 | 11.5% | 17.5% | 2,350,000 | - | 167,601 | |
| Pure Alpha | Retail (Ontario) | 1/17/2020 | 0.0% | 0.0% | 50,000 | - | - | |
| Subtotal | 8,750,000 | 1,150,000 | 512,411 | |||||
| Loans issued after December 31, 2019: | Maturity date | Coupon Interest rate | Effective interest rate1 | Loan principal | Committed | Fair value of warrants or equity held5 | ||
| JWC - Tranche 2 | Premium cultivator | 11/6/2021 | 9.3% | 13.8% | 1,150,000 | 6 | - | 205,238 |
| JWC - DIP loan | Premium cultivator | 6/30/2020 | 10.0% | 23.4% | 800,000 | 3,200,000 | - | |
| Cresco | MSO - cultivation, distribution, retail | 7/31/2021 | 12.7% | 14.8% | 2,623,200 | 3 | - | - |
| Heritage | Extraction, medical, cultivation | 1/31/2022 | 9.5% | 14.6% | 4,875,000 | 1,825,000 | - | |
| Good Buds 2 | Premium cultivator | 9/1/2020 | 11.5% | 25.7% | 550,000 | - | 30,040 | |
| Hello | Retail (Ontario) | 8/28/2021 | 10.5% | 13.1% | 1,000,000 | - | - | |
| Subtotal | 10,998,200 | 5,025,000 | 235,278 | |||||
| Portfolio Weighted Average2 / Total | 10.2% | 15.2% | $ 19,748,200 | $ 5,025,000 | $ 747,689 | |||
| Loans fully repaid during year: | Settlement date | Coupon Interest rate | IRR7 | Loan amount | MOIC8 | Fair value of warrants or equity held4 | ||
| MYM | Cultivator | 11/29/2019 | 12.0% | 27.3% | $ 3,000,000 | 1.08 | $ 35,701 | |
| 180 Smoke | Retail (Vape) | 2/20/2019 | 10.0% | 51.4% | 425,000 | 1.39 | - | |
| Blissco | Premium cultivator | 7/15/2019 | 8.5% | 25.3% | 1,500,000 | 1.04 | - | |
| CGS - Facility A | Retail (Ontario) | 9/9/2019 | 21.6% | 29.0% | 750,000 | 1.09 | - | |
| CGS - Facility B | Retail (Ontario) | 9/17/2019 | 8.5% | 8.5% | 500,000 | 1.04 | 133,320 | |
| Settled Weighted Average2 / Total | 11.9% | 27.2% | $ 6,175,000 | 1.09 | $ 169,021 | |||
| (1) Effective return excludes the impact of warrants, shares, royalty investments, and transaction costs | ||||||||
| (2) Weighted average based on loan amount. | ||||||||
| (3) Cresco loan is denominated in USD. Foreign exchange rate on date of loan was used to calculate balance in Canadian dollars. | ||||||||
| (4) As at December 31, 2019 | ||||||||
| (5) As at date of loan issuance. | ||||||||
| (6) Amount committed as at December 31, 2019 was issued subsequent to year-end. | ||||||||
| (7) Annualized Internal Rate of Return on the loan | ||||||||
| (8) Multiple on Invested Capital | ||||||||
About Trichome Financial Corp.
Trichome Financial is a specialty finance company focused on providing flexible and creative credit solutions to the global legal cannabis market. Trichome was created to address the lack of credit availability in the large, growing and increasingly complex cannabis market. Trichome Financial's experienced management team and founders have a unique edge to capitalize on proprietary deal flow and industry insight while developing a first mover advantage as a global cannabis focused specialty finance company. Trichome Financial provides customized financing solutions across the industry value chain to support growth, capital expenditures, mergers, acquisitions, working capital and other needs. Leveraging the combined resources and knowledge of its founders, it is able to offer significant value-added financial, product, market and operational support to its partner companies.
For further information about Trichome Financial please visit us at www.trichomefinancial.com or @trichomefinance on Twitter and refer to the joint information circular of Trichome Financial and 22 Capital dated May 29, 2019 which is available on the Company's SEDAR profile at www.sedar.com.
READER ADVISORY
This news release contains "forward-looking information" and "forward-looking statements" (collectively, "forward-looking statements") within the meaning of the applicable Canadian securities legislation. All statements, other than statements of historical fact, are forward-looking statements and are based on expectations, estimates and projections as at the date of this news release. Any statement that involves discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could", "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking statements. In this news release, forward-looking statements relate to, among other things: the Company's effective cash interest yield, effective interest rate, cash-based operation expenses, the development of the global cannabis industry and trends in the cannabis capital markets, the future market opportunity for Trichome Financial and factors that may improve future profitability. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors which may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include, but are not limited to: general business, economic, competitive, political and social uncertainties; and the delay or failure to receive board, shareholder or regulatory approvals. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on the forward-looking statements and information contained in this news release. Except as required by law, Trichome Financial assumes no obligation to update the forward-looking statements of beliefs, opinions, projections, or other factors, should they change.
This press release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), or any state securities laws and may not be offered or sold within the United States or to United States Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
Non-IFRS Financial Measures
The Company reports non-IFRS financial measures, including adjusted loss and adjusted loss per share, as key measures used by management to evaluate performance of the business, to compensate employees and to facilitate a comparison of quarterly and annual results of ongoing operations. While used to assist in evaluating the operating performance of the Company, readers are cautioned that adjusted loss as reported by the Company may not be comparable in all instances to adjusted loss as reported by other companies. For a detailed explanation of how the Company's non-IFRS measures are calculated, please refer to the Company's MD&A filing for the year ended December 31, 2019, which can be accessed via the SEDAR Web site (www.sedar.com).
Contact Information
Michael Ruscetta, CEO
Telephone: (416) 467-5229
Email: [email protected]
Marc Charbin, Investor Relations
Telephone: (416) 467-5229
Email: [email protected]
SOURCE: Trichome Financial Corp