There's just no money coming in': Cannabis sector bracing for wave of insolvencies in 2020
- Thread starter gb123
- Start date
TheRealDman
Well-Known Member
#corporateweedsucks
Cannabis industry insiders are bracing for a slew of bankruptcies in the coming year as small and medium-sized companies low on cash struggle to raise funds in the downtrodden sector.
“We have had a busy few years, but next year we’re going to be busy for a different reason — we expect a few million dollars in legal fees from insolvencies and consolidation,” said Ranjeev Dhillon, a partner at McCarthy Tetrault LLP and the firm’s cannabis group lead.
Dhillon says that his team is already seeing companies that are heading down that path.
“Companies that cannot distinguish their brands and don’t have the money to keep up operations on existing facilities will not be able to carry forward,” he told the Financial Post in an interview. “The only kind of money you can raise right now, if at all, is debt.”
Although cannabis sales have been increasing on a monthly basis since legalization in October 2018, inventory has been growing much more quickly, resulting in oversupply and declining prices.
That dynamic, coupled with a slow rollout in the number of cannabis stores in Ontario — which, to a large extent, choked the supply chain — has led to consecutive quarters of weak revenue for many licensed producers.
“We are definitely going to see some companies struggle. We’ve already seen two companies file for bankruptcy protection, and they certainly won’t be the last,” said Greg Engel, CEO of Organigram Holdings Inc., which has also been hit by slumping sales.
In December, Wayland Group Corp., one of the first pot companies to obtain a cultivation licence, filed for creditor protection. Two months earlier, DionyMed Brands Inc. had entered into receivership after failing to repay debt.
“Companies that don’t have a good cost structure will be in a really difficult position. It’s not about growing cannabis anymore, it’s about how efficient you are as a consumer packaged goods producer,” Engel added.
For Narbe Alexandrian, CEO of Canopy Rivers Inc., the venture capital arm of Canopy Growth Corp., the ongoing lack of institutional investor interest is the sector’s biggest red flag going into 2020.
“There’s just no money coming in, so if you have a low cash balance, you might be in trouble,” Alexandrian said. “We haven’t seen the blood on the streets yet.”
Quebec licensed producer Hexo Corp. saw its stock price plunge 20 per cent over the holiday period after it announced a discounted equity raise of US$25 million on Dec. 26. The company issued 15 million new shares at a price that was approximately 14 per cent below its closing price before markets closed on Christmas Eve.
The company had previously raised $70 million through a convertible debt deal, and introduced a new discounted dried flower product called Original Stash (priced roughly 50 per cent below market value), in an effort to boost its cash position.
A Hexo Corp. greenhouse in Gatineau, Quebec. Chris Roussakis/Bloomberg files
Pablo Zuanic, an analyst with Cantor Fitzgerald called the deal “surprising.”
“Given the company had raised $70 million in convertible debentures after the October quarter, and had entered into an after-market facility to raise equity, we wonder about the need for these extra $32 million proceeds,” he wrote in a note to clients.
CIBC pot analyst John Zamparo had earlier forecast that Hexo’s “burn rate” of approximately $45 million per quarter suggested that the company would need additional funds by June 2020, or risk operating with just $5 million in cash.
Though he declined to name specific companies that could possibly face bankruptcy in 2020, McCarthy’s Dhillon said that he “wouldn’t be surprised if some of the more well-known licensed producers run into major cash issues.”
“You might be able to borrow money, but it will be very restricted, onerous terms. I think that’s when you’ll start seeing the private equity players and hedge funds get more involved because they’ll be able to strip these companies of assets that don’t make sense and restructure,” Dhillon added.
The rollout of major new product lines as part of the legalization of edibles presents a significant risk to producers.
Most of the major licensed producers — Canopy Growth Corp., Hexo and Tilray — have invested heavily in cannabis-infused drinks that will hit the market in the first quarter of 2020, but some industry observers are predicting that beverages might be a failed venture altogether.
Cannabis-infused drinks production at Canopy Growth’s Smith Falls, Ont., facility. Julie Oliver/Postmedia files
“When you look at the established markets in the U.S. — California, Oregon and Colorado — beverages are just two per cent of those markets. They never really took off,” said Jerome Hass of Lightwater Partners Ltd.
Hass believes that certain licensed producers are vastly overstating the impact beverages will have on overall sales. He says his company invested in a small brewery in Waterloo, Ont., that he once thought would be a “perfect play” for cannabis-infused drinks.
“They had a canning facility, and excess capacity so we thought these guys would be a prime beneficiary of cannabis 2.0. But management recently told us they spoke to a number of major LPs about the process of making cannabis drinks and decided the opportunity wasn’t worth their time,” Hass said.
A key aspect to the success of cannabis-infused drinks and edibles are the onset and offset times — how long it will take for the consumer to feel the “high” from the product, and subsequently, to sober up.
“Most companies are making gummies, chocolates, candies, drinks. So where the true innovation comes in will be who masters the onset and offset,” said Alexandrian, though he admits that many companies have been spreading themselves too thin in the race to offer up a variety of cannabis 2.0 products.
“I’m not sure yet what products will do well. It’s too early to tell. But the test for the industry going forward, next year and beyond, will be which companies can survive as consumer packaged goods companies. They need to be dead-set focused on how to deliver the best experience for the consumer. Those are the companies to invest in,” he said.
“We have had a busy few years, but next year we’re going to be busy for a different reason — we expect a few million dollars in legal fees from insolvencies and consolidation,” said Ranjeev Dhillon, a partner at McCarthy Tetrault LLP and the firm’s cannabis group lead.
Dhillon says that his team is already seeing companies that are heading down that path.
“Companies that cannot distinguish their brands and don’t have the money to keep up operations on existing facilities will not be able to carry forward,” he told the Financial Post in an interview. “The only kind of money you can raise right now, if at all, is debt.”
- 2019 was a disaster for the cannabis sector — and there might be more trouble on the way in 2020
- Too much weed: Canadian cannabis producers are sitting on a mountain of inventory, and it’s making some industry watchers nervous
- Feeling burned: The first year of legal cannabis has been a complete disaster for investors
Although cannabis sales have been increasing on a monthly basis since legalization in October 2018, inventory has been growing much more quickly, resulting in oversupply and declining prices.
That dynamic, coupled with a slow rollout in the number of cannabis stores in Ontario — which, to a large extent, choked the supply chain — has led to consecutive quarters of weak revenue for many licensed producers.
“We are definitely going to see some companies struggle. We’ve already seen two companies file for bankruptcy protection, and they certainly won’t be the last,” said Greg Engel, CEO of Organigram Holdings Inc., which has also been hit by slumping sales.
In December, Wayland Group Corp., one of the first pot companies to obtain a cultivation licence, filed for creditor protection. Two months earlier, DionyMed Brands Inc. had entered into receivership after failing to repay debt.
“Companies that don’t have a good cost structure will be in a really difficult position. It’s not about growing cannabis anymore, it’s about how efficient you are as a consumer packaged goods producer,” Engel added.
For Narbe Alexandrian, CEO of Canopy Rivers Inc., the venture capital arm of Canopy Growth Corp., the ongoing lack of institutional investor interest is the sector’s biggest red flag going into 2020.
“There’s just no money coming in, so if you have a low cash balance, you might be in trouble,” Alexandrian said. “We haven’t seen the blood on the streets yet.”
Quebec licensed producer Hexo Corp. saw its stock price plunge 20 per cent over the holiday period after it announced a discounted equity raise of US$25 million on Dec. 26. The company issued 15 million new shares at a price that was approximately 14 per cent below its closing price before markets closed on Christmas Eve.
The company had previously raised $70 million through a convertible debt deal, and introduced a new discounted dried flower product called Original Stash (priced roughly 50 per cent below market value), in an effort to boost its cash position.
Pablo Zuanic, an analyst with Cantor Fitzgerald called the deal “surprising.”
“Given the company had raised $70 million in convertible debentures after the October quarter, and had entered into an after-market facility to raise equity, we wonder about the need for these extra $32 million proceeds,” he wrote in a note to clients.
CIBC pot analyst John Zamparo had earlier forecast that Hexo’s “burn rate” of approximately $45 million per quarter suggested that the company would need additional funds by June 2020, or risk operating with just $5 million in cash.
Though he declined to name specific companies that could possibly face bankruptcy in 2020, McCarthy’s Dhillon said that he “wouldn’t be surprised if some of the more well-known licensed producers run into major cash issues.”
“You might be able to borrow money, but it will be very restricted, onerous terms. I think that’s when you’ll start seeing the private equity players and hedge funds get more involved because they’ll be able to strip these companies of assets that don’t make sense and restructure,” Dhillon added.
The rollout of major new product lines as part of the legalization of edibles presents a significant risk to producers.
Most of the major licensed producers — Canopy Growth Corp., Hexo and Tilray — have invested heavily in cannabis-infused drinks that will hit the market in the first quarter of 2020, but some industry observers are predicting that beverages might be a failed venture altogether.
“When you look at the established markets in the U.S. — California, Oregon and Colorado — beverages are just two per cent of those markets. They never really took off,” said Jerome Hass of Lightwater Partners Ltd.
Hass believes that certain licensed producers are vastly overstating the impact beverages will have on overall sales. He says his company invested in a small brewery in Waterloo, Ont., that he once thought would be a “perfect play” for cannabis-infused drinks.
“They had a canning facility, and excess capacity so we thought these guys would be a prime beneficiary of cannabis 2.0. But management recently told us they spoke to a number of major LPs about the process of making cannabis drinks and decided the opportunity wasn’t worth their time,” Hass said.
A key aspect to the success of cannabis-infused drinks and edibles are the onset and offset times — how long it will take for the consumer to feel the “high” from the product, and subsequently, to sober up.
“Most companies are making gummies, chocolates, candies, drinks. So where the true innovation comes in will be who masters the onset and offset,” said Alexandrian, though he admits that many companies have been spreading themselves too thin in the race to offer up a variety of cannabis 2.0 products.
“I’m not sure yet what products will do well. It’s too early to tell. But the test for the industry going forward, next year and beyond, will be which companies can survive as consumer packaged goods companies. They need to be dead-set focused on how to deliver the best experience for the consumer. Those are the companies to invest in,” he said.
Hust17
Well-Known Member
Cannabis infused shit is shit, these companies are losing sight. Grow dope buds and worry about the rest later. I guarantee you at least 80% of people are looking to smoke some fucking green not rub it on their fucking skin or take a fucking bath in it. Make the bud smokers happy and the rest will follow.
CalyxCrusher
Well-Known Member
Oh no.......if only someone had seen this coming........
OLD MOTHER SATIVA
Well-Known Member
"Companies that cannot distinguish their brands"
>uhuh ...yeh ...thats the only reason....
>uhuh ...yeh ...thats the only reason....
Last edited:
yeah ..that ignorant comment made me roll my eyes as well and LAUGH OUT LOUD
OLD MOTHER SATIVA
Well-Known Member
don't say "ignorant" it was a "forward thinking" comment
Hust17
Well-Known Member
One place I worked at used ladybugs but mostly just rigorous cleaning daily.
TheRealDman
Well-Known Member
Looks can be deceiving...remember CannTrust cleaned up/hid rooms to pose for pics. That’s a PR shot for sure!
The fact they are growing "that way" 
is beyond funny. 3/4 of those plants are USELESS
and the tops will see a shit return as well................................................. GUARANTEED!
No amount of lady bug intervention would help this kind of place.
There SHOULDN'T BE ANY BUGS TO BEGIN WITH OR AFTER HARVEST !!!
but hey
................. lost business will make them see it 
is beyond funny. 3/4 of those plants are USELESSand the tops will see a shit return as well................................................. GUARANTEED!
No amount of lady bug intervention would help this kind of place.
There SHOULDN'T BE ANY BUGS TO BEGIN WITH OR AFTER HARVEST !!!
but hey
................. lost business will make them see it 
sandman83
Well-Known Member
easy, you vacuum and mop then take the picture
Doubt it looks like that when the cameras are off.
AquaTerra
Well-Known Member
They also destroyed the Hydro Retail market in BC
No more new car sales like before
No more dirt bikes, snow mobiles and boat sales like pre legalization
No more disposible cash for tens of thousands of Canadians spending it locally, just foreign investors sucking it out.
No more new car sales like before
No more dirt bikes, snow mobiles and boat sales like pre legalization
No more disposible cash for tens of thousands of Canadians spending it locally, just foreign investors sucking it out.
Selling products at prices when weed was $3000/lb and you have a good chance of of going to jail when busted is probably the gov/LP's first mistake. Second mistake is assuming everyrone and their mom was going to run out on legalization day and start smoking weed.
Last edited:
chex1111
Well-Known Member
Halleleujah! can i get an "amen!"
OLD MOTHER SATIVA
Well-Known Member
come on you guys..that weed greenhouse photo looks awesome..