For Cannabis Companies, Coronavirus Threatens To Smoke Cash Flows

0
268
Photo: Shutterstock

In a world suddenly disrupted by coronavirus (COVID-19) and its fallout — anxiety, the market free fall, increasing instances of self-quarantine and a consumer stampede every time hand sanitizer reappears on store shelves — the cannabis startup universe is no exception.

“The way that we are changing our business is that we are not doing live meetings or attending or speaking at events,” shared Wendy Robbins, half of the entrepreneurial duo (with Karen Paull) behind Amazon Prime’s The Marijuana Show.

“We’re not producing videos outside of our home, not travelling,” Robbins reported by email of hers and Paull’s new business routine. “Our biz now is 100 percent on the phone or Zoom for video meetings.”

Robbins and Paull are hardly alone: “We’re in the middle of this capital crunch – this Darwin phase, we like to call it,” Morgan Paxhia, managing director of Poseidon Asset Management, told MJBiz Daily. Paxhia said that the already-tight outlook for capital in the cannabis industry is being exacerbated by the virus and could result in some companies in the category failing altogether.

Of course there’s the Small Business Administration’s recent offer, to designated states and territories, of low-interest federal disaster loans. These loans would provide working capital to small businesses suffering substantial economic injury as a result of the coronavirus. And that might help cushion the blow for cannabis companies.

But capital flows aren’t their only problem. “It is my opinion that the coronavirus pandemic has and will continue to affect many aspects of the global supply chain,” Danny Davis, CEO and founder of Offstage Holdings (investing in hemp extraction and CBD companies), predicted by email. The reason for disruption in the supply chain, he explained, is China. Cannabis companies rely on China as a major provider of hardware in their industry.

Aggravating the problem, Davis said, has been the timing. Coronavirus was identified as an epidemic in China not long before the January 25 Chinese New Year. Companies in the city of Shenzhen that source hardware for U.S. hemp manufacturers were shut down due to the celebrations combined with the epidemic (now a pandemic) and did not start back to work until February 17. That was two-plus weeks later than expected, Davis said.

“Thus, less employees working, the late start on many pending projects and continued uncertainty have created a perfect storm for supply-chain derailment,” Davis said.

The result, the CEO continued by email, has been that many companies have begun efforts to source locally, “which I believe will drive up costs and delivery timelines.

“I am aware of major delays for R&D projects due to the lack of workers returning from Chinese New Year due to the back-to-back nature [with the] coronavirus. While work has resumed in major areas like Shenzhen, the backlog due to the virus is causing extended timelines and lower factory output efficiency due to continued labor shortages,” Davis said.

This potential for disruption, he said, is why his own company decided some time back not to import raw material, and to employ patent-pending label technology to ensure customers of U.S.-level lab quality and transparency in sourcing.

And the cannabis supply itself? MarketWatch reported that, “Thus far, the cannabis supply does not appear directly threatened.”

Dwight Blake, editor of AmericanMarijuana.org, a CBD-reviewing site, took a different view. “China is one of the leading hemp growers in the world,” he wrote by email. “They grow the hemp despite all marijuana products being illegal at home. The hemp they grow is for export, and a reduction of the output will negatively affect the availability of hemp and hemp products in the United States and the rest of the world.”

Whatever the eventual outlook for cannabis companies, the impact on scheduled meetings has been clear:

· The SXSW festival which had scheduled a cannabis business track with speakers from Marijuana Business Daily was cancelled.

· The American Herbal Products Association’s Hemp-CBD Congress and Dietary Supplement Regulatory Summit was postponed.

· The European marijuana business conference Spannabis Barcelona was postponed for several months.

Besides these events, MJBiz Daily reported, there’s been the cancellation or postponement of the International Cannabis Business Conference in Berlin and CannaTech in Tel Aviv.

All these factors, plus people’s underlying anxiety, have led to uncertainty in the industry and to industry leaders thinking about something other than their bottom line. Robbins, from The Marijuana Show, put it this way: “We’re all in for a wild ride, where self-care and solitude will be the norm.”