08 Apr Corona-Cannabis Update #6: Some Deals, RIP Charlotte

As the nation’s coronavirus news takes a teeny look around the apex corner (maybe), we bring you the latest update on the pandemic’s impact on the marijuana and hemp industries. As medical marijuana remains an “essential” business throughout the US, industry participants remain mostly locked out of federal crisis funding. Legalization efforts are stalled, and the capital markets are mostly shut down. That said, there remain a mixed bag of news to update and muse about, thus:

• Pockets of investment. There are a few financings and acquisition deals happening. As recently reported by Viridian Capital, financings are mostly debt and almost entirely for public companies. Acquisitions are pretty much public companies acquiring private ones.  Several REITs have completed sale-leaseback deals and a few MSOs have added new financing, mostly by (painfully) amending existing arrangements. But overall deal flow is down very significantly, especially year over year, and industry stock prices have continued their slide.
• Corona takes Charlotte. Sad to learn of the passing of Charlotte Figi, 13, apparently of corona related complications. She of Charlotte’s Web fame, brave young Figi showed the world how CBD successfully treated her epilepsy, which helped build a company and an industry vertical.
• 4/20 goes virtual. MJBiz reports that many planned events and concerts around the mythical cannabis celebration day (which has now become more like a month of activities) have been canceled or moved online. Some have lost deposits on venues, some gatherings have been postponed, others are offering special online discounts and the like.
• Unemployment impact on “legacy” market. An industry analytics firm has posited that the massive rise in unemployment could lead those who are financially struggling back to the typically less expensive illicit or “legacy” market, offsetting the strength in demand for state legal products during the crisis.
• Some companies reaching crisis. Several companies have given up on survival and moved into receivership. One large multistate operator has missed a key debt payment and hired an investment bank to examine “strategic alternatives.” The NYSE is seeking to delist a Canadian MSO as well after a legal scandal led to its filing for bankruptcy. Keep an eye on this, especially on companies with weak balance sheets.

Where are we? The initial happy-ish cries of those relieved to see cannabis businesses staying open as essential have given way to the reality of a mostly closed capital market, which puts most every cannabis business at risk, since very few are profitable. More shutdowns and consolidation are likely. Charlotte’s passing points to a real concern: that many medical cannabis users, because of illnesses leading them to the product, are more at risk of the virus hitting them, and hard. After SXSW was canceled I suppose not having 4/20 is no surprise, but it has been a big promotional period and will have an impact, much like how Valentine’s Day keeps the flower industry going. Not sure I agree that folks will rush back to the black market, even in recession people still like “small” luxuries. But we are about to witness a dramatic reshaping of the leading industry companies in a Darwinian (yes I stole this from you Mr. Greiper) survival test for all.