The decreased valuations and capital required companies to reevaluate their growth strategies, and certain deals fell apart, including MedMen’s previously announced acquisition of PharmaCann. Even though it was an all-stock acquisition, in cancelling the deal MedMen stated that several of the assets being acquired would have required “significant capital expenditures.” That was a clear sign that cash was tight and the prospects of raising more of it seemed bleak. Not surprisingly, MedMen announced a restructuring and revised growth strategy shortly after the deal was cancelled. Another deal that recently fell apart was Harvest’s acquisition of Verano. While the primary reason given for the cancellation was COVID-19’s impact on the various agencies that would need to approve the deal, the companies also cited adverse capital market conditions and a challenging environment for asset sales as reasons the deal was called off.

And now this week we have seen two more indicators that cash remains tight for the industry. The first indicator is that Curaleaf has restructured its acquisition of Grassroots from a stock-and-cash purchase to an all-stock deal. Curaleaf has removed the $75 million in cash that was originally part of the deal, and replaced it with over $50 million of Curaleaf shares and 16 million subordinate voting shares. According to a statement, the revisions to the deal are intended to allow for “further optimization of cash, providing maximum flexibility to support the future growth of the business following the close of the transaction.” The second, and possibly more alarming, indicator is that Acreage Holdings has taken a short-term $15 million loan with a staggering 60% interest rate and $6 million default penalty that cannot be prepaid for 90 days, which locks in at least $2.25 million in interest payments. Acreage put up its intellectual property and assets in three states as collateral for the loan. According to its press release, Acreage expects to use the proceeds for working capital and general corporate purposes. Coupled with Acreage’s announcement that it furloughed 122 employees in April, it seems clear that Acreage is cash strapped at the moment.

There is a concerning trend in the industry, and it has only been exacerbated by the ongoing pandemic. Something like the SAFE Act would be a welcomed injection of hope for the industry right now; opening up traditional banking avenues and access to capital would transform the industry overnight. However, it seems extremely unlikely that the SAFE Act or anything like it is going to become law this year. That means companies need to find ways to cut spending and save cash wherever possible. There’s no doubt there are brighter times ahead for the industry, but the question is, who will still be standing when we get there?

Please check out our blog for continued updates on developments affecting the cannabis industry.