22 Apr Corona-Cannabis Update #8: Some Financings Closing, Bankruptcies Begin

Those of a certain age remember that Wednesday is Prince Spaghetti day. But in this new topsy-turvy world we welcome you back to corona-cannabis update day! As usual we have a mixed bag of news in the last week concerning the impact of COVID-19 on the cannabis and hemp industries and your humble blogger’s ruminations thereon.

• Financings completed. A private US cannabis retail platform raised $23 million late last week from several venture funds. This following a $40 million public offering completed by a public US cannabis producer a few weeks ago. But these completed deals are very few and far between compared to the same period last year.
• Here come bankruptcies. A cannabis biotech company filed for federal Chapter 11 bankruptcy protection in Colorado, ironically two days ago on 4/20. Since the company is not operating in federally illegal cannabis, it believes it can access federal bankruptcy court. This follows a Canadian operator seeking similar protection up there. Others are beginning to run out of cash, a big retailer killed an acquisition deal, a big, troubled MSO’s executives are being sued by a creditor to turn over the deeds to their homes as another has missed a key debt payment and hired an investment bank to examine strategic alternatives. A big Canadian operator is trying a reverse stock split to shore up its steadily declining trading price. This adds to a number of hemp producers’ bankruptcy filings in the last few months, in one case blaming “confounding guidance from regulatory agencies, unforeseen market forces and other challenges.”
• Sales up for 420. An industry software company reports that last Wednesday, right after folks received their first stimulus checks, “was far and away the biggest Wednesday in the history of legal cannabis, with both ticket size and total revenue up over 50% compared to a normal Wednesday in 2020.” Earlier this month, a large Florida operator posted strong fourth quarter earnings as well.
• CBD corona claims challenged. The FDA last week sent a warning letter to a UK CBD manufacturer that sells in the US, telling them to stop claiming that their product could prevent or treat coronavirus. Earlier this month similar letters were sent to three US CBD purveyors.
• Mexico legalization pushed again. Last Friday the Mexico Supreme Court, which ordered their legislature to legalize adult use of cannabis by October 31, 2019 (which was then extended to April 30, 2020), has permitted another extension of that deadline to December 15 due to COVID-19.

Raising money remains very difficult. It’s a bit easier for public companies and ancillary businesses. An investor told me this week that companies remain “unrealistic” about their valuations, making new investments more challenging to complete. The shakeout has begun (bankruptcies) while a number of the fundamentals of the industry remain fairly strong (sales up). Some companies going out, frankly, was necessary, expected and the strong (balance sheet) will survive and or merge. The CBD players need to adjust their game and stop making claims that are not scientifically backed up, this hurts all the players unfortunately. And yes, Mexico legalization will happen- will that put more pressure on states like Texas to reconsider adult use legalization? Yes, but probably not enough to actually let it happen any time soon. See y’all next week – stay safe and Zoom away people!