Cannabis Weekly Round-Up: Cannabis Essential, but Stocks Still Hurting

COVID-19 continued to impact the marijuana industry this week, with more companies reacting to the ongoing global spread of the virus.

Many cannabis-focused firms have announced layoffs and other operational changes as a result of the coronavirus; on a larger scale, an increasing number of areas in the US and Canada are designating cannabis as essential, allowing stores to keep operating amid widespread shutdowns.

Read on for a closer look at some of the biggest cannabis news over the last five days.

Essential status for cannabis spreads

More states in the US designated cannabis businesses as essential this week, allowing stores to remain open in places that have put lockdown measures in place to fight the spread of COVID-19.

A map from Marijuana Business Daily indicates that as of Thursday (March 26) morning, seven states under stay-at-home orders had declared both medical and recreational marijuana as essential, while a further 12 had given essential status to medical marijuana only.

In total, 22 states had stay-at-home orders in place at that time, while some cities and counties had enacted such orders separate of the states they are in. A number of other states had ordered the closure of non-essential businesses.

The situation is playing out similarly in Canada, where both Ontario and Quebec have declared cannabis essential. All non-essential businesses have been ordered to close in both provinces.

BC has also given cannabis essential status, but has not ordered non-essential businesses to close. In contrast, PEI shut down all non-essential businesses last week, including alcohol and cannabis stores.

Speaking in a webinar on Wednesday (March 25), Nic Easley, founder and CEO of 3C, a cannabis consulting firm, suggested that these moves to make cannabis businesses essential could be good for the industry in the long term, particularly in the US, where the drug is still federally illegal.

“When we look at these emergency (regulation) changes that we’ve been helping with and implementing in many of these new states, things that weren’t previously allowed are quickly allowed,” he said. Online ordering, door delivery and preorder pickup policies have changed in some areas due to COVID-19.

“In this industry we asked for a few things and we just got them,” Easley continued. “And what I’m really excited about is … if you give us an inch, we’re not going to give it back. I don’t think times are just going to be going back to normal … we’re defining and creating a new normal. This is an event that will be the hallmark of our times; this is enormous and it’s just begun.”

Not all companies will survive

Despite those comments, Easley also warned webinar participants that overall the coronavirus has the potential to negatively impact many companies in the marijuana industry.

“The amount of volatility is going to crush some of these companies,” he said.

“I’ve seen it where even some of these big companies — big, public companies — they only have two or three weeks of burn rate right now,” Easley continued, noting that cash is king. “(Last week was) probably the worst capital week for cannabis for private investments probably in the new history of our industry.”

His advice for cannabis companies was to look carefully at their operations to determine what is necessary and what isn’t, and then make adjustments accordingly.

“What are you doing, what’s your spend, what’s vital? How can you reduce certain fees?” Easley said. “If you remember the industry back in the day … what do you do if you have a problem? You throw money at it — and you had a lot of it. That’s not the case anymore, so we have to be super efficient in how we design our operations.”

Aside from their spending, Easley suggested that marijuana firms look at regulatory changes that might help or hinder them and at how their suppliers may be impacted by the spread of COVID-19.

“If people thought there was competition before, in times like this competition is only going to get more fierce,” he added.

Harvest Health backs out of Verano deal

A major deal in the cannabis space fell through this week, with Harvest Health & Recreation (CSE:HARV,OTCQX:HRVSF) axing its planned acquisition of Verano Holdings on Thursday (March 26).

When the companies announced the deal in early 2019, they said the all-stock US$850 million transaction would create a new entity operating in 16 states in the US, with 150 branded items for sale and 123 retail dispensaries. However, since then the purchase has faced delays at the federal level in the US.

“Prolonged obstacles in meeting requirements for state and local regulatory authorities needed to transfer ownership and operational licenses, adverse capital market conditions, a challenging environment for asset sales, all contributed significantly to the decision not to move forward with the pending acquisition,” said the companies on Thursday.

Verano CEO George Archos did also point to COVID-19 as an adjacent factor in the decision to call off the deal, saying that the agencies dealing with the transaction are now also confronting the disease, which could have caused more delays.

Neither party is obligated to pay a breakup fee. Harvest ended the week by closing a separate (and much smaller) acquisition on Friday (March 27).

Cannabis company news

Aside from the major news covered above, a number of other cannabis companies shared announcements related to the coronavirus:

• Beleaguered CannTrust Holdings (TSX:TRST,NYSE:CTST), which faced an illegal growing scandal last year, warned investors that as Health Canada works to respond to the COVID-19 crisis, the company’s remediation efforts could be delayed.
• The Flowr Corporation (TSXV:FLWR,OTC Pink:FLWPF) announced that it has restructured 25 percent of its workforce, a move that will result in annual savings of C$6 million. It also said that it will focus in the near term on the premium Canadian dried flower market with the goal of decreasing its timeline for being cash flow positive. The move was partially due to COVID-19.
• The Green Organic Dutchman (TSX:TGOD,OTCQX:TGODF) is taking numerous measures to deal with the impact of the coronavirus, including postponing the start of production at its Valleyfield facility in Ontario and reducing pay for salaried employees. Most Valleyfield employees have been temporarily laid off, the company said.
• Packaging company KushCo Holdings (OTCQX:KSHB) revealed a new strategic plan that it will use to move forward amid the outbreak. As part of the plan, which involves focusing on stronger multi-state operators, licensed producers and leading brands, 49 employees were laid off this month.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.