The legal cannabis industry promises to generate significant returns for investors and owners. However, anyone looking for short-term returns will find themselves disappointed. The industry still has a lot of work to do. In the meantime, companies must dedicate massive amounts of money to developing products, opening stores, starting efficient grow operations, and swaying political opinions.
Creating a new industry requires a lot of money, and that cuts into profits. If you just glance at cannabis stocks, you might wonder why anyone buys them. Many of them have tons of debt!
In reality, most companies across industries take on lots of debt. They have just enough revenue to cover the payments and still profit a little. That’s not nearly as easy to accomplish when you operate a small business in a new industry.
However, Agrify is committed to showing that it’s possible to grow an industry while repaying debt.
Agrify Commits To Repaying Debt
Inflation and other barriers have made it difficult for Agrify to meet many of its financial goals. The company managed to increase its year-over-year second-quarter revenue by 63.5% in 2022. Unfortunately, it earned 26% less than during the year’s first quarter.
This small stumble didn’t distract Agrify from an earlier commitment to repaying its debts, so it could focus on turning revenues into profits.
The company restructured its finances so it could move closer to this goal. The new agreement:
- Repays a significant portion of the current, outstanding loan.
- Exchanges the remaining debt to a new note with a lower principal balance.
- Does not require amortization payments on the principal for three years.
- Gives the company an opportunity to repay the loan early with minor financial consequences.
According to Raymond Chang, Chairman and CEO of Agrify, “Modifying our credit facility has been a top priority for us, and we are pleased to be able to move forward with additional flexibility to manage our business, conserve cash, and pursue a variety of compelling growth opportunities with fewer restrictions.
Can Other Cannabis Companies Follow Agrify’s Lead?
Agrify’s leaders and major investors believe that the new strategy will help them build a more dynamic company capable of making decisions based on opportunity instead of financial necessity. It’s much easier to develop a new product when you don’t need to worry about repaying high-interest loans. Agrify believes this is the way forward for them.
But can other cannabis companies follow its lead?
Agrify’s Role in the Cannabis Industry
Ideally, they can do similar things. Then again, Agrify’s section of the cannabis industry faces fewer pressures from regulations and consumer opinion than other companies.
Agrify develops and manufactures equipment that helps other companies succeed. Some of Agrify’s biggest sellers include cultivation and extraction equipment. It also provides professional facility design and engineering services. If you need someone to train your grow op’s employees or sell you distillation equipment, you go to Agrify.
This unique role as a manufacturer, designer, and trainer means Agrify spends money differently than growers and storefronts. It absolutely needs to invest massive amounts of cash into researching and developing reliable vertical grow solutions that work better than those built by competitors. However, it doesn’t need to think about purchasing other businesses to grow its brand authority and reach. If you own a large cannabis company that grows or buys products for consumers, you probably dedicate a lot of money to acquiring other businesses.
This significant difference could convince other cannabis companies that they cannot follow Agrify’s lead.
The Future of Financial Success in Cannabis
Companies certainly have unique concerns in the cannabis industry. What works for Agrify might not necessarily work for a retailer or grower. However, all companies need to start thinking about how they can spend less money without damaging long-term growth. That might mean restructuring current debts, seeking more investors, or entering partnerships instead of acquiring smaller businesses. If corporations do acquire smaller businesses, they might need to keep immediate and future financials in mind.