🦠 What's the coronavirus have to do with cannabis?

This article was published 2/12/2020 on Cannablurbs, a weekly newsletter covering the business, strategy and policy of legal cannabis. If you like it, sign up here for the far more attractively formatted and convient email.

Cannablurbs

Corona(virus) and Lime: The escalating coronavirus outbreak in China, which has killed hundreds, could have meaningful implications on… the vape industry? Nearly all vape hardware and batteries are made in China, leaving the industry exposed, similar to how trade wars with China had a disruptive effect on vape supply chains. With many manufacturing facilities struggling to come back online post-Lunar New Years and air shipments next to impossible, the impact could touch other China-dependent segments like LED lighting, greenhouse structures and packaging and extraction equipment providers.

Why It Matters: China’s centrality in global supply chains, especially in industries like electronics manufacturing, means that, even if coronavirus’ impact is primarily contained to China, its downstream economic effects will be felt worldwide, even in seemingly less correlated sectors like cannabis. In other news within the (thankfully very limited) coronavirus/cannabis crossover space, there are, of course, jerks propagating fake news that cannabis kills coronavirus. No, it doesn’t, and it’s damaging to the industry to make false claims.

Law of the North: Shut out of bankruptcy protections in the United States, some cannabis businesses are looking north to Canada as a solution to their financial struggles. For businesses where Canadian courts hold true jurisdiction through their “Canadian-incorporated entity or [having] the majority of its business operations in Canada”, it may be an option, although… it’s complicated. Would-be Eaze adversary DionyMed is an ongoing example, as its British Columbia incorporation allows Canada jurisdiction.

Why It Matters: We did say it was going to get weird. Expect creditors and debtors to battle it out this year fighting for favorable jurisdictions (such as those where bankruptcy is even possible). Tryke, the owner of Reef Dispensaries, is already locked in such a fight, as its debtor Linx Card seeks to avoid going into receivership. Meanwhile, hemp businesses might have their own issues, but lack of bankruptcy protections doesn’t seem to be one.

Aurora Stumbl-oras: Canadian licensed producer Aurora Cannabis announced the departure of its founding CEO, Terry Booth, and forthcoming layoffs totalling 10% of its workforce. After a year of substantial debt growth, significant equity dilution, and revenue below expectations, it’s not an unexpected move at Aurora, especially after two other executives departed in December. The company will also be taking writedowns of roughly CA$1 billion, reflecting revised assumptions around its previous acquisitions. 

Why It Matters: Well, that didn’t take too long, eh? 10% seems to be the magic number for cuts, as Tilray and Aurora both targeted the same percentage for layoffs. With Canopy Growth reporting earnings on Friday, will we see similar rightsizing at the largest Canadian player? It seems likely, as investors push across the industry for profitability. On the Aurora side, one wonders if the much-hyped addition of Nelson Peltz as strategic advisor will ever bear fruit in real CPG partnerships (which could now be potentially company-saving).

ICYMI: I talked with Luke Anderson, one of Cann’s founders, on how they’ve built the company and what they’re planning next.

2020 Forecast: 5 Hot Predictions For The New Year

We’ve been pulling out our crystal ball and bringing some of our biggest predictions for the year over the past five weeks. If you missed our previous predictions, or want to see how we’re progressing, you can keep up-to-date here.

#5: 2020 will see a rebound for the industry by the end of the year, but a rising tide won’t lift all ships - especially not the leaky ones.

The Situation: 2019 was a rough year for cannabis companies, and 2020 has been no less brutal. American and Canadian cannabis stock indices reached multi-year lows, while private capital raises slowed dramatically as well. It’s ugly, and it seems like it’s only getting uglier (just look at the Cannablurbs headlines this week, for example). The world’s two preeminent markets, California and Canada, appear ripe for carnage, with everyone asking: when will it end?

What’s Coming: The night’s always darkest before dawn, right? 2020 will see the industry rebound by year’s finish, as improving market conditions, legalizing states, and aggressive cost cutting manifests in some companies thriving. The key, however, is it might not be the biggest names of today - certain companies’ financial struggles likely won’t be overcome, and thus will entrench some of the better positioned and well capitalized big incumbents, as well as provide opportunity for rising, less publicized players. In many ways, this might be the end of the beginning for the cannabis industry. While we likely won’t know by end of year exactly which companies are poised to be dominant for years, we’ll have a much better feeling for who has a good chance.

Quick Hits

• Acreage’s MA Contracts Are Inoperable: First TILT, now Acreage. Regulators are enforcing dispensary limits. If I’m an operator with sketchy agreements, I’m probably nervous. 
• Could Bernie Legalize On Day One?: Short answer - probably not. It's moreso symbolic of how much of a priority it is for his campaign, and Dem candidates more broadly. 
• CBD Craze Sparks “Weed Washing” Trend: Scummy companies are using CBD hype and a lack of federal guidelines to falsely market beauty items by including hemp seed oil… which has no CBD. 
• Tour Buses Get Rolling In Chicago: Complicated lounge laws aren't stopping people from launching via “private” dwellings. Meanwhile, Ontario reconsiders its own rules.
• OK Dispensary Glut Driving Price Wars: A free market system means price competition, while limited licenses means expensive supply? Someone phone Milton Keynes.
• Majority of Kentuckians Support Legalization: It’s too bad their top representative in the Senate doesn’t share the sentiment, eh?

Research Rips

•  Cannabinoids, Terpenes and Flavonoids Could Have Major Pharmaceutical Promise
•  Cannabis Could Be Useful in Treating Rheumatic Diseases and Fibromyalgia
•  Cannabinoids Exhibit Antibacterial Activity Against MRSA
•  Cannabis May Be Useful in Treating Autism Spectrum and Fetal Alcohol Disorders

State-by-State

• Minnesota Democrats Outline Plan To Legalize Recreational Marijuana
• Connecticut Lawmakers File Marijuana Legalization Bill On Behalf of Governor
• NY Governor Says Marijuana Vote Will Be A Tough One
• Colorado Marijuana Legalization Would Be Overturned By New Ballot Measure
• Virginia House Approves Marijuana Decriminalization Bill

This article was published 2/12/2020 on Cannablurbs, a weekly newsletter covering the business, strategy and policy of legal cannabis. If you like it, sign up here for the far more attractively formatted email.