Pelorus Capital Group marks debt upgrade milestone for cannabis finance sector

By Steve Gelsi

Pelorus' 7% senior secured notes rating raised 2 notches to A from BBB+ by Egan-Jones

Pelorus Capital Group has received what it described as the highest debt rating in the cannabis lending space with an upgrade by two notches to A from Egan-Jones on its $50 million bond, MarketWatch has learned.

The Newport Beach, Calif. lender in the cannabis space with $376 million of assets under management said Monday that its 7% senior secured notes were upgraded by debt research firm Egan--Jones to A, with a positive watch, from BBB+. The company's overall rating remains BBB+.

"The credit rating is supported by the strength of the balance sheet, successful...track record and investment income growth year--over--year," Egan--Jones said in a research note provided to MarketWatch.

The higher rating on the notes signals that the debt is seen as more secure and it would help Pelorus potentially obtain a lower cost of capital than it would have under the old rating if it goes out to the debt market again to raise capital.

Pelorus Capital Group president Rob Sechrist said the upgrade is seen as a milestone, for the firm and for the cannabis lending space overall.

"The higher rating signals the markets are starting to acknowledge that Pelorus keeps breaking these glass barriers," Sechrist told MarketWatch.

Egan--Jones is the only major debt rating firm that rates cannabis company debt. Moody's, S&P and Fitch Ratings do not rate cannabis debt because it remains a Schedule I controlled substance under federal law.

Prior to the Pelorus Capital Group A-rated debt, no cannabis company had earned an A rating from Egan-Jones, Pelorus Capital Group said.

Sechrist estimated that if the company had gone to raise the $50 million bond back in 2021 with the higher debt rating it has now, the bond would have priced closer to 5% rather than 7%.

Pelorus Capital Group was the first private mortgage real-estate investment trust in the cannabis sector when it debuted in 2016.

Other debt providers in the cannabis space include Chicago Atlantic Real Estate Finance Inc. (REFI), Innovative Industrial Properties (IIPR) and AFC Gamma (AFCG).

Pelorus specializes in bridge loans for construction projects and fully stabilized for cannabis--use facilities.

-Steve Gelsi

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05-15-23 1140ET

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