8-K: Jushi Holdings Secures $5.1 Million from ERC Factoring and $4.6 Million from Second Lien Notes

Jushi Holdings Inc. bolsters its capital structure by factoring employee retention credit (ERC) refund claims and securing subscriptions for additional second lien notes.

Summary

• Jushi Holdings Inc. announced it has received approximately $5.1 million from factoring certain Employee Retention Credit (ERC) refund claims.
• The company also received binding subscriptions to sell additional 12% second lien notes due 2026, expecting net proceeds of approximately $4.6 million.
• The ERC refund claims were sold to a third party, involving approximately $6.0 million of claims.
• Jushi retains the right to receive a portion of any interest paid on these claims.
• The company has approximately $3.0 million of additional ERC tax refund claims remaining with the IRS that were not sold.
• The second lien notes will be issued under the company's existing trust indenture.
• The notes will be issued at a 10% original issuance discount.
• Purchasers will receive five-year warrants with 75% coverage and an exercise price at a 50% premium to the volume-weighted average price of a share, with a floor of $0.45 and a ceiling of $0.50.
• An entity affiliated with CEO James Cacioppo subscribed for $3.7 million of notes and will receive up to approximately 6.2 million warrants.
• Founder Denis Arsenault subscribed for C$2.0 million of notes and will receive up to approximately 2.4 million warrants.
• The closing of the offering will occur at least five business days following the announcement.
• The company intends to use the net proceeds for general corporate purposes, including working capital, capital expenditures, and potential acquisitions.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While the company is raising capital, it's doing so through debt and factoring, which suggests some financial pressure. However, management expresses confidence, and the funds are intended for growth initiatives.

Positives

• The factoring of ERC refund claims provides immediate additional liquidity to Jushi.
• The sale of second lien notes strengthens the company's capital structure.
• The transactions are expected to allow Jushi to continue investing in its businesses.
• The participation of the CEO and a founder in the note offering demonstrates confidence in the company.
• The company retains the right to receive a portion of any interest paid on the factored ERC claims.

Negatives

• The second lien notes are being issued at a 10% original issuance discount.
• The warrants dilute existing shareholders' equity.
• The company is relying on exemptions from formal valuation and minority shareholder approval requirements for the related party transactions.

Risks

• The company's ability to achieve its business objectives depends on the successful deployment of the raised capital.
• The cannabis industry faces regulatory and political risks.
• The company's financial performance is subject to various economic and competitive factors.
• There are risks associated with the company's reliance on key inputs, suppliers, and skilled labor.
• The company faces cybersecurity risks and potential fraudulent activity by employees, contractors, and consultants.

Future Outlook

The company intends to use the net proceeds from the offering for general corporate purposes, including working capital, capital expenditures, and potential acquisitions.

Management Comments

• Jim Cacioppo, Chairman, CEO and Founder of Jushi, stated that the non-dilutive transaction provides immediate additional liquidity, allows the company to continue investing in its businesses, and enhances its financial position and balance sheet stability.

Industry Context

The announcement reflects a trend among cannabis companies to seek various financing options to fund operations and growth in a challenging regulatory and economic environment. Factoring ERC credits is a short term solution to raise capital.

Comparison to Industry Standards

• Other cannabis companies, such as Curaleaf and Trulieve, have also utilized debt financing and sale-leaseback transactions to raise capital.
• The 12% interest rate on the second lien notes is relatively high, reflecting the perceived risk associated with the cannabis industry.
• The warrant coverage of 75% is within the typical range for similar financings in the cannabis sector.
• Compared to companies like Green Thumb Industries and Cresco Labs, Jushi's reliance on ERC credits suggests a greater need for short-term liquidity.

Related Party Transactions

• An entity affiliated with James Cacioppo, the Company's Chief Executive Officer, Chairman and Founder, has subscribed for approximately US$3.7 million principal amount of United States dollar denominated Notes, for a purchase price of approximately US$3.3 million and will receive up to approximately 6.2 million Warrants.
• Denis Arsenault, a Founder and significant equity holder of the Company, has subscribed for C$2.0 million principal amount of Canadian dollar denominated Notes, for a purchase price of C$1.8 million and will receive up to approximately 2.4 million Warrants.

Stakeholder Impact

• Shareholders may experience dilution due to the issuance of warrants.
• Employees may benefit from the company's ability to invest in its businesses and maintain operations.
• Customers may benefit from the company's ability to deliver high-quality products and services.
• Suppliers and creditors may benefit from the company's improved financial stability.

Next Steps

• The closing of the second lien note offering will occur at least five business days following the announcement.
• The company will use the net proceeds for general corporate purposes, including working capital, capital expenditures, and potential acquisitions.

Key Dates

Keywords

Jushi Holdings, Second Lien Notes, Employee Retention Credit, ERC, Warrants, Private Placement, Capital Structure, Cannabis, Financing, Liquidity