You could say it's two down, two to go for the beleaguered cannabis roll-up TILT Holdings Inc. (TLLTF) . First, company scored a point this week by effectively refinancing a big loan with a big rate. Then a Massachusetts judge essentially handed it a victory on the vaping front. But the company still must win over bitter investors who feel burned over its initial public offering, and its price target just got slashed by one analyst.
Trimming Rates, Target Cut
TILT Holdings this week closed a loan that will be used to retire an earlier $20 million bridge loan that was dated April 29.
That old loan had an eye-popping interest rate of 18.75% per year, as well as other payables. The new loan -- a private placement of senior secured notes -- will have a maturity date of 36 months from the closing date and will instead have an interest rate 8% per year, payable quarterly. The company said that the first close was $25.6 million, and any further closing of up to $9.4 million would come within 45 days. The loan came from a syndicate of existing shareholders and new investors.
"With a full draw-down on the financing, TILT would save approximately $1 million in annual interest," wrote Canaccord Genuity analyst Bobby Burleson.
But Burleson ultimately dropped TILT's price target to $1.52 (C$2) from $1.90. The cut, said Burleson, reflected a multiple of 7.1-times his 2020 estimate for enterprise value/earnings before interest, taxes, depreciation, and amortization.
In addition, new financing will help in paying down Jupiter, the vape technology company that TILT bought earlier this year for $210 million. The previous sellers of Jupiter Research LLC have, as part of the deal, agreed to restructure the unsecured debt of $35 million -- owed to them in connection with the Jupiter sale -- with a new maturity date of January 2023 and an 8% per annum interest rate.
Massachusetts Moves on Vaping Crisis
While the vaping crisis had rolled out another obstacle for TILT as Massachusetts recently announced a months' long ban on vape products, a state judge this week handed the company a win.
The judge ordered that the state's ban on medical marijuana vaping products end as early as next week -- if the state's Cannabis Control Commission agrees.
Lifting the ban would be a boon for TILT, as its Massachusetts revenue is ramping up while the company's wholesale program gets underway, according to Burleson.
"TILT has previously announced that the company is now generating positive EBITDA driven by higher-than-corporate-average margins from Massachusetts wholesale contributions, and we believe the ongoing supply imbalance in the state offers additional margin expansion opportunities near term."
Still, Burleson said he may have to cut his estimates when the company reports its earnings Nov. 20, if vape sales take a drag on business.
Burned Investors Still Bitter
TILT has meanwhile struggled to regain investor confidence since the company wrote down $500 million in assets immediately after going public. The company blamed its bankers for projected revenue claims, but investors clearly felt it was culpable as well. Chief Executive Alex Coleman ended up resigning from that role shortly after, and Jupiter CEO Mark Scatterday stepped up to cover the job while a replacement is sought. The stock has lost over half its valuation during 2019 as investors walked away. It's lately trading at around 33 cents.
In what it called a bid to boost "transparency, compliance and corporate governance," TILT's new management has this week agreed to change its board and add two new, yet-to-be-named independent members.
While it may take a long time for burned investors to forgive, TILT's apparently trying to show that it's righting its ship. If the real earnings prove to be decent, then they may bring value cannabis investors back to the table.