The cannabis industry’s money problems are starting to produce big casualties

If declining stocks can cost the head of one of the few bright spots in the industry his job, where does that leave the rest of the business of bud?

By Kieran Delamont

2019-11-01

On October 29, the Supreme Cannabis Company announced that it had “parted ways” with John Fowler, the long-time Canadian cannabis activist who helped found the company.

The requisite congratulations from industry players rolled in online. “Congratulations, John, can’t wait to see what comes next for you!” “Thanks for everything you’ve done for the industry, John!” The reaction was, if nothing else, conciliatory.

But outside of a few grumbling shareholders, nobody seemed to be asking the more important question. Had a cornerstone of the cannabis community been sacked as a result of the company’s 56 per cent loss in stock price? Only a few weeks ago, the company announced that it was launching a podcast with Fowler at the helm.

If declining stocks can cost the head of one of the few bright spots in the industry his job, where does that leave the rest of the business?

That question applies to any number of recent C-suite casualties at the helm of pioneering cannabis companies. The firings are not isolated incidents. They are all symptoms of the same financial stormcloud that has settled over the industry.

That alone is not the problem. Nor is the downturn itself something to mourn. What is more problematic is that parts of the industry seem immune to a crucial fact. As the industry matures, it can no longer rely on investors hoping to get rich quick to raise capital.

The so-called Green Rush is over. This stormcloud could be a catalyst for reform, but the opposite is happening. While the financial performance of cannabis companies goes further into the gutter, industry cheerleaders make big promises.

But if Canada’s experiment with corporatized legalization has taught us anything it’s that precious few cannabis companies have figured out how to turn a profit. The more prominent your weed company, the worse your stock seemed to perform.

In the year since legalization, for example, Tilray’s stock has lost 86 per cent of its value. Canopy, the largest pot company in the world at one point, lost 64 per cent. The list goes on. Aphria lost 64 per cent. Hexo was down 62 per cent.

Legalization was supposed to bring riches for the weed industry. But that simply hasn’t materialized. And now the money is drying up. Yet the fact that the markets are punishing investors for overhyping pot stocks has not stopped weed stocks from continuing to promote the idea that anyone could get rich.

A quick scan of the popular weed stocks blog Motley Fool illustrates the problem.

“Turn Your $6,000 Annual TFSA Contributions Into $78,000 With This 1 Blue-Chip Growth Stock” reads one headline. “Forget Bitcoin: Here’s Why Cannabis Stocks are a Better Bet for Those Aiming for a Million,” reads another.

Equity Guru, another popular blog for weed investors, is accused of being a stock pumper so often that there’s an entire web page dedicated to it.  

Hell, I’ve met a few folks myself who are still living off the windfall from the Green Rush. It’s easy to understand why it’s so hard to shake executives out of this way of too-high thinking. After all, the infrastructure that North American pot companies needed to start selling relied heavily on investment. And a significant amount of that came from everyday folks looking to make a killing on weed.

But this intense, unwavering focus on promoting stock prices has real-world consequences. People often forget that.

MedMen, the American company bent on retail domination, was once valued at more than $300 million. This week, financial analyst Scott Willis wrote that “the only reason the company hasn’t run out of money yet is because of a generous loan from Gotham Green Partners.”

Throughout the pot market, the major players – who spent millions on lobbyists to design the regulations just the way they wanted – are relying on a daisy chain of bank loans, financing deals, or the proceeds from selling off chunks of their company, to keep the lights on.

Canopy Growth got over $5 billion from Constellation Brands. But have yet to turn a profit. Two companies, Hexo and the legally beleaguered CannTrust, laid off over 300 workers between them in October. Weedmaps fired a quarter of its staff. Leafly instituted a hiring freeze.

Public financing may have been the way the industry has funded its growth, but increasingly it’s workers that are most affected when the well goes dry.

Live by the sword…

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