April 20 was supposed to be the once-a-year Black Friday for the legal cannabis market, but, instead, the industry is bracing for an economic blow from the coronavirus crisis. BVWire spoke with Ron Seigneur (Seigneur Gustafson LLP), a Colorado practitioner who has been involved in cannabis industry valuations for years. “We predict a significant drop in sales in many parts of the cannabis industry, unless the economy re-opens and rebounds quicker than expected,” he says. He also gave us a few more interesting insights:
- Currently, cannabis operators cannot apply for PPP loans, and this may apply to professional service firms that get most of their business from this industry. The CARES Act specifically prohibits businesses that are illegal at the federal level, including ancillary companies that get revenue from such businesses, from accessing the stimulus money. Legislation has just been introduced in the House that could change this.
- Consolidation is already happening in the market, and it will accelerate.
- Cannabis is deemed an essential service in most jurisdictions for now but with new restrictions on how consumers can purchase product. But curbside sales are now happening, and there’s more pressure for home delivery—concepts that were off-limits a short time ago.
- There is a potential oversupply of product coming due to decreased demands that might not be evident until after the April 20 holiday and initial surge after folks no longer are ordered stay at home.
- Capital will be more scarce than ever, and there will be more bottom feeders, particularly in the emerging markets as opposed to places such as Colorado and Washington.
The issues mentioned above are just a few examples of how dynamic the cannabis sector is today amid the uncertainty that all businesses face. While the future may be bright for some, it will be a mighty struggle for others as they try to “redefine a path to success,” he notes. Seigneur is co-author of “Cannabis and Hemp Valuations: A Market Analysis” (a BVR Briefing) and The Cannabis Industry Appraisal and Accounting Guide.