COVID-19 is pushing some cannabis businesses to claim bankruptcy

Published Apr 9, 2020 09:00 a.m. ET
iStock / Gam1983

The legal cannabis industry has gotten off to a pretty rough start, and this new virus is threatening to bring down everything that investors, consumers, advocates, and business owners have worked for. Though at first glance, with reports of millions of dollars in revenue, it might appear as though this flourishing market might have a good chance of weathering this storm, just underneath that facade is a fragile system that is on the verge of collapse.

We are only a few months into the new year, and so far, we’ve already seen some of the biggest and most successful cannabis companies file for financial protections in hopes of buying enough time to reassess and plan for the future. This is not a good sign after a disastrous 2019, and the strain doesn’t appear to be letting up anytime soon.

Companies that have already filed for bankruptcy

These two bigwigs were once believed to be indestructible as they brought home awards for innovation and made headlines around the globe with their bright and hopeful plans to rule the industry.

CannTrust

The end of CannTrust has been predicted by experts for the last 9 months, and it started when CannTrust stock took a hit as it became obvious that their tarred reputation from growing cannabis plants in an unlicensed facility was getting in the way of difficult to obtain financing. This poor decision ultimately cost them their license making it nearly impossible to bounce back with any success.

James E. Wagner

James E.Wagner was the second cannabis company alongside CannTrust to file for bankruptcy during the last week of March. The Kitchener based cultivator had no choice but to cut a deal when their loans began to pile up, and the funding to keep them paid dwindled. The owners of this cannabis business have announced a massive restructuring, but the future isn’t looking very bright if things don’t change to make it easier for this kind of company to obtain financing.

On the verge

Two more Canadian greats are on the chopping block, as experts predict their demise based on a long history of low earnings combined and a low probability of success in the current market.

Hexo Corp

Hexo stock was one of the most popular choices for investors from the very first moment they hit the scene, but it didn’t take long for the company to start reporting major losses. This past year, Hexo tipped off investors when they refused to release their quarterly report on time, which ultimately revealed a staggering $266 million worth of charges for impairment and write-downs. This means that Hexo will need to acquire a sum of at least $40 million by the end of April to avoid claiming bankruptcy, something that is nearly impossible in the current climate of the market.

Cronos Group Inc.

Cronos is also in danger of succumbing to financial pressures, and the only thing that is left holding them up at this point is some serious financial backing from a wildly successful tobacco company called Altria Group Inc. The company’s latest reports of a meager $7.3 million in revenue led to a downgrade for their stock, further compromising their chances of making it through additional strain.

Competition is fierce, and finance is lacking

At the beginning of the pandemic, most regions deemed cannabis as an essential service, which led to a significant peak in sales that offered a bit of relief to the already struggling businesses, but as some locations are ordered to close, and consumer demand wanes back to the regular lows, the future of the market is quite uncertain. Without the money to build up brands, and design new products, or a way to get products to customers, one thing is for sure, and it’s that even some of the greatest cannabis companies aren’t going to survive to the end of the year.

Cannabis company CannTrust Holdings obtains CCAA protection from creditors

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