Specialty finance company Silver Spike Investment Corp. SSIC was formed to invest over the cannabis Ecosystem through investments such as direct loans to and equity investments in privately held marijuana companies.

An analyst’s perspective

With an Overweight rating and a 12-month price target of $15.30, Cantor Fitzgerald’s Pablo Zuanic said he sees >50% upside potential over the next 12 months for shares of SSIC, the only publicly traded cannabis-focused business Development Companies (BDCs).

The thesis

According to the report, the structure of Silver Spike Investment Corp. (SSIC) access to a larger addressable (debt) market opportunity compared to those that only focus on mortgage backed loans.

“Although SSIC shares have remained steady over the past three months (~$10 range), largely immune to December’s cannabis sector decline (MSOS ETF -40%), the stock is performing against the sectoral REIT at a Traded at a discount of 30% to NAV -Comps that trade either linearly or at a premium (REIT IIPR [NC] +37%),” said Zuanic, who should be able to grow the company’s future through debt and eventual equity increases.

SSIC’s business strategy

The company, which estimates legal sales at $33 billion in 2022E and forecasts $72 billion in 2023, intends to focus on cash flow-based lending in addition to secured lending beyond just real estate financing.

“All of this implies a much larger TAM (total addressable market) for a BDC compared to a REIT. Given that the cannabis lending market is currently highly fragmented with little competition from banks and other traditional lenders, the current imbalance is between demand and supply fault Capital should enable SSIC to generate attractive risk-adjusted returns,” noted zuanian. “The current SSIC portfolio (a mix of five private and public debt) is yielding 13-21% (weighted average gross yield of 15.7%, mid-November) compared to 8.9% for US high yield Index, 8.3% for the Direct Lending Yield Index and 6.5% for the US Leveraged Loan Yield Index.”

In mid-December, SSIC…