Marijuana-Company Debt Is Surging Along With Their Shares

(Bloomberg) -- Marijuana mania is spreading from stocks to debt.

While none of the big cannabis companies have issued an outright bond yet, several have sold convertible debt and investors are lapping it up.

Aurora Cannabis Inc.’s C$230 million ($177 million) of 5 percent unsecured convertible debt due 2020 is trading at about 113 percent of face value while Canopy Growth Corp.’s C$600 million of 4.25 percent convertibles due 2023 are trading around 150 percent, according to two people familiar with the notes who requested anonymity because the matter isn’t public. Supreme Cannabis Co.’s convertible bonds announced on Wednesday are trading a little over par while Organigram Holdings Inc.’s convertibles are listed at 130 percent.

Marijuana-Company Debt Is Surging Along With Their Shares

Most players in these notes are retail investors, as well as some convertible arbitrage players and U.S. hedge funds and boutiques, according to one of the people.

The gains are bucking a rout in global government bonds spurred by concerns over rising interest rates and outpacing the iShares Advantaged Convertible Bond Index Fund, which has returned 2.6 percent this year.

Cannabis assets are soaring with Canada poised to legalize recreational pot on Oct. 17 and acceptance of the drug starting to spread. The BI Canada Cannabis Competitive Peers Index has doubled in the past 12 months.

Tilray Inc. the world’s largest publicly traded marijuana company, announced plans Wednesday to raise $400 million to expand its coffers through a private placement of convertible bonds. Nanaimo, British Columbia-based Tilray, which has a valuation of about $13.5 billion, said the interest rate on the senior notes, due 2023, will be determined at the time of pricing and will be convertible into cash, shares or a combination of cash and shares, the company said.

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