21 May Corona-Cannabis Update #12: Losses Continuing, Cannabis Companies Accessing PPP

As we zoom (pun intended) through another week, welcome to the latest edition of our blog series focused exclusively on the impact that COVID-19 has had on the cannabis and hemp industries. I pray for the day that I can provide you the last edition when all this is behind us or nearly so. Every state now is reopening to some extent, only time will tell what effect that will have on the rates of those contracting the virus or succumbing to it. Here is the latest, as well as some thoughts and predictions about cannabis post-pandemic.

• Losses continue. A number of leading cannabis companies reported more losses in the quarter ended March 31. One big Canadian operator had a “smaller” $137M quarterly loss. Another had to adjust its EBITDA to get down to a $19.7M quarterly loss. One US operator’s year-over-year quarterly loss increased ten-fold to $45.7M. And another Canadian company has filed for insolvency protection. A handful of companies are starting to show profits, however. Why this all matters for COVID below.
• Some cannabis companies getting PPP money. One online cannabis networking site received a $50,000 PPP loan. A cannabis software company got $2.2 million. There are others. This despite SBA and government guidance that appears to prohibit direct and “ancillary” cannabis businesses from eligibility for the coronavirus relief funds. Hearing rumors that some may consider legal action on this.
• Banking bill getting attention. As we noted previously, the House’s newly passed coronavirus relief bill includes the SAFE Banking Act which makes accepting cannabis business more attractive for financial institutions. The attention, however, is not all positive. In the Senate, folks like Cory Gardner (R-CO) are supportive, but so far leaders like Mitch McConnell (R-KY) are not. But a bi-partisan group of 34 state Attorneys General wrote a letter supporting the bill.
• More delays and extensions. Colorado said it has to delay its effort to pass legislation to expunge prior low level drug crime convictions due to pandemic-related delays in the ability of the legislature to function. Other states have continued to extend renewal deadlines or defer renewal fees for cannabis operator licenses and medical cards.
• Mass adult use reopening. As we reported, Massachusetts was getting ready to announce a plan, which they now have, to reopen adult use stores on a limited basis starting this Monday, May 25. Their original decision to close was quite controversial.

As usual a mixed bag of news for the “essential” cannabis business. There is a time limit for money-losing operators that varies from company to company before they run out of cash. In many cases that is calculated in months and no assurance that they will be able to easily raise additional cash to keep going during the pandemic. Moving to profitability is key! The PPP story is a mystery to me. Most banks require an applicant to certify that they are not directly or indirectly involved in federally illegal activities. Some, it appears, do not. This disparity seems illogical and unfair to those whose banks are more strict. As noted previously, the SAFE Act is very unlikely to get through the Senate, sorry guys. Glad to see state governments easing on deadlines for license renewals and such, especially since the states themselves are down to skeleton staffs. The brand new Massachusetts adult use market was dealt a major blow when the state closed them down, it is good to hear that is now finally being reversed.

Post-pandemic tip of the week: officing. How we work is likely to change permanently after all this ends. Offices likely will over time move to hoteling concepts where you book a room when you need it but otherwise work remotely. Many large businesses, including large law firms, already were moving to consolidate space needs, make offices smaller and the like. The several month test of WFH has been largely successful and the move to less face time in the office will be accelerated. What does this mean for cannabis? It will be more important for retailers to be located near residential, vs. commercial business areas. Delivery options also will be more important. The suburbs also may rise as more folks bail on city life. What do you think?