Article by Kristine Owram, Bloomberg News
Several cannabis companies are set to run out of cash in the next few months as capital markets grind to a standstill.
An analysis of 33 firms tracked by trade publication Marijuana Business Daily found that eight don’t have enough funding to last more than 10 months. It looked at the companies’ operating cash flow, cash on hand, unused credit facilities and new debt or equity and subtracted capital expenditures and debt due in 2020 to reach the conclusions, which were detailed in a presentation last week.
“It’s going to be an extinction-level event for some companies,” said Craig Behnke, equity analyst at the trade publication commonly known as MJBiz Daily. “But it’s a healthy and necessary process for any industry to go through once it’s had a phase of absolute excess and exuberance.”
The long-term investment thesis for the industry hasn’t changed as legalization spreads and demand grows, but first companies need to survive long enough to see it, said MJBiz Daily analyst Mike Regan.
Many cannabis companies were running low on cash and struggling to raise more before the pandemic, which only made the situation more difficult as equity markets tumbled and volatility spiked. The total amount of capital raised by the industry fell 69 per cent in March from a month earlier as funding sources dried up, according to Viridian Capital Advisors.
This has weighed on stock prices. The Bloomberg Intelligence Global Cannabis Competitive Peers Index fell more than 50 per cent between mid-February and its recent low on March 18, and had already lost two-thirds of its value in the 12 months before that.