The lack of bankruptcy protection in the cannabis industry gives $GTBIF a unique opportunity. Rather than tradition M&A, GTI can purchase distressed senior secured debt from creditors. When the borrower defaults, GTI could take control of the assets at a steep discount.

The amount of funds that are able to participate in purchasing the debt is limited due to the plant touching nature of these operations. Additionally, these assets are relatively illiquid and there is little capital for new operators to come in and purchase the assets. This gives GTI the opportunity to get a bargain deal.

For example, consider a cannabis company in Michigan (where prices have bottomed) that generates $10M in annual cash flow but carries $70M in senior secured debt due this year. The company is unlikely to generate enough cash to repay its debt, and raising new capital would be difficult. GTI could approach the lender and offer $30M for the debt, effectively taking control of the company at just 3x cash flow when the company defaults. Once in control, GTI could invest in operational improvements that the previous owner couldn’t afford, further enhancing profitability.