Check Out Stoke’s Webinar
Pioneering Risk-Adjusted Returns in the Canadian Cannabis Industry
By David Adam Goldstein, CEO of Stoke Inventory Partners Inc.
Stoke Inventory Partners Inc. is a specialty finance company that is achieving superior risk-adjusted returns by lending to small- and medium-sized businesses in the Canadian cannabis industry via trade, equipment, and leveraged finance products. We use data, over-collateralization of the most liquid assets and structure to mitigate risks and protect capital. Our management team has over 150 years of combined financial services, management and operational experience and we have been lending successfully to the cannabis sector for almost two years.
Stoke has launched its financing activities in Canada for two primary reasons: cannabis is federally legal in Canada, which makes commerce in this sector much simpler compared to in the US for example, and we wanted to seize upon a profound risk-adjusted return opportunity presented by the Canadian cannabis sector: financing trade receivables of provincial wholesalers. This means that Stoke is lending at commercial lending rates on debt secured by the Canadian government.
In Canada, most trade in the cannabis sector flows through provincial wholesalers such as the Ontario Cannabis Store or the British Columbia Liquor Distribution Branch. These “Crown” corporations have payables to licensed producers and other licensed parties in Canada that are backed by the full faith and credit of the Canadian government. The average daily balance of provincial wholesaler receivables is currently estimated to be over C$300 million and projected to grow to over C$450 million in 2025.
The demand for cannabis in Canada (and elsewhere) is inelastic and retail sales continue to grow at a compounded annual rate in excess of 10%, with the annual sales for 2023 projected to top C$6 billion. Interestingly, this comes despite the sector backdrop of cratering wholesale and retail prices in 2022 and early 2023. There is building evidence that wholesale prices are rising slowly; certainly the growth rate in sales will increase further as prices recover.
With credit risk in the sector’s supply chain substantially mitigated for holders of the provincial receivables, Stoke focuses on trade risk. Stoke subscribes to various data sets and has access to private data sets not available to the public. We use data to create unique insights that improve our origination practices and then to quantify the trade risk embedded in receivables purchased as part of our underwriting.
We have proven that it is possible to lend to this sector safely, as we have done for the last two years despite a historically challenging environment that has chased timid investors away while we earned outsized risk-adjusted returns. Our proprietary data collection and analysis provides us with near real-time visibility to identify target companies, closely monitor client performance, and mitigate risk at every step. In addition, since our loans are short term, we are not exposed to risks associated with changes in the broader interest rate environment.
For more information please contact Spotlight Family Office Group at Info@SpotlightFamilyOffice.com