MrJamesBond007 wrote:
companies low on cash struggle to raise funds in the downtrodden sector.
“We have had a busy few years, but next year we’re going to be busy for a different reason — we expect a few million dollars in legal fees from insolvencies and consolidation,” said Ranjeev Dhillon, a partner at McCarthy Tetrault LLP and the firm’s cannabis group lead.
Dhillon says that his team is already seeing companies that are heading down that path.
“Companies that cannot distinguish their brands and don’t have the money to keep up operations on existing facilities will not be able to carry forward,” he told the Financial Post in an interview. “The only kind of money you can raise right now, if at all, is debt.”
There are currently more than 200 cannabis companies either in the cultivation, processing or extraction businesses, primarily supplying a domestic market that has yet to cross the $1 billion mark in annual sales.
Although cannabis sales have been increasing on a monthly basis since legalization in October 2018, inventory has been growing much more quickly, resulting in oversupply and declining prices.
That dynamic, coupled with a slow rollout in the number of cannabis stores in Ontario — which, to a large extent, choked the supply chain — has led to
consecutive quarters of weak revenue for many licensed producers.
“We are definitely going to see some companies struggle. We’ve already seen two companies file for bankruptcy protection, and they certainly won’t be the last,” said Greg Engel, CEO of Organigram Holdings Inc., which has also been hit by slumping sales.
In December, Wayland Group Corp., one of the first pot companies to obtain a cultivation licence, filed for creditor protection. Two months earlier, DionyMed Brands Inc. had entered into receivership after failing to repay debt.
“Companies that don’t have a good cost structure will be in a really difficult position. It’s not about growing cannabis anymore, it’s about how efficient you are as a consumer packaged goods producer,” Engel added