14 Jun Corona-Cannabis Update #14: Valuations Dropping, Sales Generally Strong

As my faithful blogees may have noticed, I did not post an update last week. Why? Because business is getting busy! Plus, I think moving to every other week as we transition into the next phase of dealing with the pandemic makes sense. Since our last entry, June has arrived and with it rather dramatic changes in our world following the tragic death of George Floyd in one of my favorite cities, Minneapolis. Massive, continuing protests have sprung up not only nationwide but globally, all since we last reported to you. Some of those protests in the first few days led to lawlessness, widespread looting and arrests. Since then (other than following the more recent tragedy in Atlanta), the marches have been predominantly peaceful. I hope you will all read our law firm’s statement on the matter here.

The news barely mentioned COVID-19 for a bit, but that coverage has resumed since a number of states are again witnessing spikes even while states like NY, which has begun to reopen, have “flattened the curve” for now. Some fear the protests also will yield a new surge of virus infections (most doctors suggest it is not easy for the virus to travel out of doors). Lately, the stock market is recovering well, and that is opening up potential fundraising opportunities for cash-strapped cannabis companies. So, as the world is in a truly topsy turvy spot, here is your update on the impact that the coronavirus has had on our industry:

• Valuations dropping. A recent report reviewed multiple planned financings that were canceled, and interviews with investors who are slashing previous valuations of their potential targets by more than 50% in some cases from before the pandemic. In other deal news, a cannabis operator canceled its deal to acquire an edible company, while an acquisition of a CBD company by a Canadian operator for $40 million in stock was completed and another big US operator closed on financings that can garner $60 million. Viridian reports that financing deal volume since the market recovery is about the same, but average deal size is up, and financings are almost exclusively for public companies.
• Generally strong sales results. Colorado sales were down in April while Oklahoma, Illinois and Oregon broke records for sales in May.
• Protests cause closings. On June 1, a large multistate operator temporarily closed all its nationwide dispensaries after several of their California outlets were vandalized and looted. In addition, following looting there, all Chicago dispensaries have closed for now.
• Republicans oppose banking bill.  A number of Republican Senators have criticized the House’s latest coronavirus stimulus bill because it includes cannabis banking relief. Said one in Senate floor remarks, “…[s]o far Democrats’ major proposal for the next phase of our coronavirus response is a $3 trillion bill that mentions the word ‘cannabis’ more often than it mentions the word ‘job’ – which tells you all you need to know about how seriously Democrats are taking this.”
• New Zealand legalization impacted by corona. In September, New Zealand voters will decide whether to legalize adult use of cannabis. The major group organizing the “get out the vote” effort has indicated that COVID-19 has effectively stopped their planned effort for a nationwide road show and expressed concern that this could have an impact on the fall voting.

Overall an interesting few weeks for sure. The adjustment of valuations in financings was inevitable. The strong sales results are no surprise to anyone, as we have covered previously. Hopefully the calmer protesting will soon lead to reopening of shuttered dispensaries. Seems interesting for Republicans to focus on an anti-cannabis message when over two-thirds of Americans would like to see adult use legalized and over 90% favor legalizing medical cannabis. Not sure what that is about or what political benefit they seek to gain from it. And what to say about New Zealand other than keep at it!

Post-pandemic tip of the week: When we emerge from the coronavirus crisis and begin to take action in response to the anti-racist protests, the importance of social equity in cannabis legalization may loom brighter than ever. Indeed some are quietly saying that the widespread outcry could accelerate legalization in certain states (like NY) and federally as well. When you combine that with the greater need states will have to enhance tax revenues and create jobs post-pandemic, the environment to move ahead with further legalization efforts appears to be gaining some strong tailwinds. See you in a few weeks!