There is little good news right now in the cannabis industry, anywhere. The reality is that this industry is not “recession-proof” and follows the laws of economics – and gravity
Another day, another story about a major cannabis brand in trouble. They are coming with regularity these days – so much so that actually mentioning the same out loud, not to mention in print, is not an automatic ticket to shunning.
The economic crosswinds are everywhere.
In the US, MSOs (multi-state operators) MedMen and Curaleaf have significantly retrenched.
In Europe, the situation is not much better. Firms are trying to sell themselves, finance themselves, and, when failing, laying off people if not shutting up shop.
Is this second great retrenchment merely a reflection of the way things are for everyone post Covid, or is there something else going on?
Off of Pandemic Life Support
In fact, Covid appears to have given the industry a much-needed breather if not respite from what was already afoot even before the Pandemic. See the significant write downs and retrenchments of both Canopy and Tilray (for starters) that were well underway even before lockdown. The reality is that this industry is far from mature, and so far the financing that has entered it – either from reverse IPO start-ups to secret loans from Roman Abramovich or worse, scams like the Juicy Fields affair – has not been based on anything but profiting from the ongoing, cyclical hype and sourced from far too many dubious sources.
Shorting the market, in fact, has been the only way, apart from being able to close deals with American rap stars (in the case of Germany) that anyone has made any money so far. Including of course, in Europe.
What generally then, does the immediate future hold?
Bullish as she goes – And Bullshit Increasingly Is on The Way Out
The fact that a major sourcing platform in the United States with a reach of 50% of the legally traded cannabis in the United States has closed a mega deal is actually just another sign of what is actually going on in the market.
Consolidation is the name of the game, when one is lucky. Outright flameouts are of course, already beginning, and affecting both cultivation and retail outlets. No matter how painful, commoditization, and of the type we are now witnessing, is a fact of life in innovative capitalism. It waits, like the tide, for no human and flows relentlessly in the direction of the next “opportunity.”
But at its root, no matter how speculative, even this kind of capital looks for numbers – and right now, the only ones being put on the board in many places are of the negative kind.
That has nothing to do with actual sales of course, or the appetite for reform. The black and grey markets are thriving precisely because of these regulatory patches of quicksand.
For the first time, the “industry” such as it is, is experiencing a recession, everywhere, albeit for slightly different reasons. One of the similarities across the board, of course, is the ongoing intransigence of federal authorities to get a move on with approving obvious and already out of the bottle reform.
And while this is, at this point, not expected to happen at the EU level, thus thwarting the plans of pro-reform forces in Germany, the Czech Republic, Luxembourg, Malta, and probably Portugal, there are plenty of regulatory headwinds left in the way.
This alone is also one of the biggest problems facing the nascent industry, such as it is. Even the companies with name, market and “other” share plus success in raising capital (and via no matter what route) are in choppy waters right now.
It is also why the Juicy Fields scam is going to turn out to be so significant. They were, really, the only money in the market, certainly in Europe, for the first 18 months after Covid began to lift. The fact that they were should also ring alarm bells.
The bad news? The first part of the party is certainly over.
The good news? This is cyclical. And of course, this industry will arise, phoenix like, from the ashes.
The question is where, how, and in what form?
Those are all the questions that those in the market must now ponder, meet and overcome. And if not, there will successive waves of those who come after. Welcome to the biz.
