Goldman Alumnus Jumps Into Cannabis Debt Financing

(Bloomberg) -- Trichome Financial Corp., a company led by Goldman Sachs Group Inc. alumnus Michael Ruscetta, is readying a C$100 million ($75 million) war chest to dive into the business of debt financing for cannabis companies.

Toronto-based Trichome is planning to raise between C$25 million ($18.8 million) and C$35 million of new equity, adding to C$15 million already raised by partners, managers and some investors, Ruscetta said in an interview at Bloomberg’s offices in Toronto. In the second quarter, the firm will also start raising C$50 million for a fund that will co-invest with Trichome in cannabis debt transactions.

Debt financing has been relatively rare in the volatile pot industry, where companies have typically relied on equity to raise funds as traditional bankers shied away from the space. Some of the bigger cannabis companies are beginning to offer convertible debt. Canopy Growth Corp., Aurora Cannabis Inc. and Tilray Inc. -- the industry’s largest companies -- have issued C$1.3 billion of such securities, but they have yet to issue a straight bond.

“In any sort of credit market, you know, you’ve got the banks and the bank loan market and the high yield market, and then the mezzanine market, you have private lenders. And so there’s a whole ecosystem here,” said Ruscetta, who was co-head of Goldman Sachs’ Canada Special Situations Group between 2006 and 2008.

Financing Supply

In the cannabis industry “We’ve got nothing, right? We’re kind of at the very start of banks lending to the Canopys and Auroras," he added. "But they’re kind of doing that because there’s other business for them to get involved in them.”

Trichome is already financing cannabis companies’ supply, taking receivables as a guarantee, he said. The company is seeking to expand into financing mergers and acquisitions and restructurings later on. It’s targeting internal rates of return at around 15 percent, though that could vary if leverage is added, he said.

Trichome, whose largest shareholder is pot brands company Origin House, plans to go public via a reverse takeover on the TSX Venture Exchange in the spring. The company will only lend to Canadian firms at first but is looking to develop a structure that will allow it to lend elsewhere, including the U.S. where pot is still illegal at the federal level, Ruscetta said.

Smaller Firms

The firm’s focus is lending to all cannabis firms except for the 10 largest producers, as they are already well supported by the banks, he said.

Trichome announced Tuesday it will proceed with the issuance of subscription receipts that turn into common shares once all the paperwork on the reverse takeover is complete, the company said in a statement.

Before joining Trichome in 2018, Ruscetta managed the RCM Special Situations Fund. He previously was managing director of Amaranth Advisors (Canada) ULC, a multi-strategy investment fund as well as investment banker at Canadian Imperial Bank of Commerce.

To contact the reporters on this story: Esteban Duarte in Toronto at eduarterubia@bloomberg.net;Kristine Owram in Toronto at kowram@bloomberg.net;Paula Sambo in Toronto at psambo@bloomberg.net

To contact the editors responsible for this story: Christopher DeReza at cdereza1@bloomberg.net, Jacqueline Thorpe

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