• October 19, 2020

Cannabis and COVID: Smaller companies rising as conglomerates struggle

 Cannabis and COVID: Smaller companies rising as conglomerates struggle

You might expect that the biggest cannabis players would be the best-equipped to deal with the new, COVID-19 “normal.” But you might be wrong. 

Common wisdom says that larger companies would be better prepared to survive the ups and downs of business, especially in times of crisis. But is that necessarily true today as the coronavirus continues to ravage the country and world?

Perhaps the biggest thing that has helped smaller businesses is that even though most are not eligible for federal aid during the crisis, cannabis stores have, for the most part, been deemed “essential” in states where it’s legal. At the same time, other types of businesses have remained shuttered. But simply being allowed to remain open while cannabis sales have spiked is not necessarily a windfall for all cannabis companies. The larger players have been crying out for immediate relief; a symptom of poor management practices that predated the crisis. 

 Even though states have responded by allowing cannabis pickup and delivery services to maintain social distancing, many larger cannabis companies strapped for cash are struggling to survive. Those that were already leveraged to the hilt and struggling to pay bills are in deep trouble. For companies that prioritized rapid growth with an enormous footprint, they’re experiencing financial distress. Still, the cannabis industry has achieved newfound legitimacy as most states deemed it an essential service during the quarantine. Think about it: a substance that is still classified in the same category as heroin or methamphetamine is now considered “essential,” too. That’s progress. 

Demand for cannabis remains high. There was more than $12 billion in legal cannabis sales last year, with more than 250,000 employed in the legal industry. Oregon’s April retail sales alone topped out at $89 million, a $5 million increase over March. And Ohio’s medical marijuana industry reported its best two months yet in March and April, which officials are attributing to the shutdown and some tweaks to the program.

It might seem interesting to see some cannabis companies struggling financially at a time when sales are up and the industry was largely deemed essential. But it all goes back to the misguided trajectory of some facets of the industry. Cannabis companies who grew too quickly are seeing that no industry is safe from disruption.

Many public cannabis companies with artificial growth through enormous footprints are now seeing revenue losses that they are equating to the COVID pandemic. In reality, these losses were setting in long before, it is simply underscored now. And while cannabis companies should be treated the same as traditional businesses — in the form of being eligible for federal and state relief — the industry should be honest about what led to financial woes in the first place. These companies put their energy into becoming “the largest pot company,” scaling at a dangerous rate and failing to follow basic business principles that promote steady growth, a focus on quality control and client services. 

As a result, we’re now beginning to see a major shift in the cannabis market as several “mainstream” public pot companies face a detrimental slow in cannabis investments and M&As, leading some to bankruptcy.  

Small business cannabis owners with an eye on steady growth have seen steadier success. Still, they had to pivot quickly. “We’ve been fortunate with what’s going on,” says Eryc Klein, president and CEO of Leiffa Quality Medical, a Lakewood, Colo.-based cannabis company that specializes in solventless hash and premium flower. “We have basically stuck to our standards of producing quality over everything else,” he continued. “We sell only top-quality product, and we have a loyal customer base that we rely on. We don’t have a lot of tourists. We’re making sure we take care of customers’ needs.”

Meanwhile, bigger companies struggle with stock evaluations, cash flow, investors, and acquisitions. Canopy Growth, the multi-billion-dollar Canadian cannabis grower, has cut hundreds of jobs in 2020, including some due to the virus during a restructuring effort this year. New York-based Acreage Holdings has closed stores and laid off or furloughed employees. MedMen, a California-based public company that some have called the Apple of pot, closed five stores in Florida amid a cash crisis that might or might not be attributed to coronavirus. (The company is battling a class-action lawsuit by ex-employees, and investors are suing the founders. They are also battling questionable legal practices under investigation by officials in Nevada.)

It’s different for smaller companies. Leiffa’s Klein says that having a child four months ago might have inadvertently helped him and the Leiffa staff better prepare for the shutdown. “It made me overprotective right away, and that perhaps made us act faster than some other companies,” he said. “We worked quickly to start phone orders and curbside pickup before it was mandated. All employees wear protective gear. Our staff was ready, and we added another manager just to run crew for processing. It was really crazy and overwhelming at first.”

Around the country, a handful of larger cannabis businesses continue to hire and build their companies. Green Leaf Medical told Politico that it’s hiring about 300 people for cultivation and retail operations in Virginia and Maryland.  In Illinois, Cresco Labs has announced it’s hiring staff for its retail stores. AltMed Florida continues to open dispensaries and hire people. 

But it appears to again be the smaller, non-public companies choosing to plant local roots during this time. Boulder, Colo.-based Terrapin Care Station, a mid-size cannabis company in three states, added security to its ranks, first reaching out to the local community for people who might have been laid off during the pandemic. The company ended up in a partnership with Z2 Entertainment, which manages the Boulder and Fox theaters, which were forced to shutter due to COVID. Terrapin hired laid off security guards who worked concerts and venues to help mitigate damage to the local community. Terrapin also recently added digital positions, and the company is continuing to hire as it expands its footprints in Pennsylvania and Michigan. 

Wanda James, co-owner of Simply Pure dispensary in Denver, and the first African American cannabis business owner in America, said the goal right now is to make the store more user-friendly in a COVID world. Making sure her regular customers are taken care of is the top priority, she said. “We’re doing more online and that kind of stuff,” James added. “The store is actually doing well. People trust us and believe in us. We are keeping the place clean. We have good customers… It’s the new normal.”

As restrictions are lifted and people begin to venture out again, James isn’t sure what will happen—at this point she has no idea whether or when the store will be allowed to return to full capacity. “Until we’re through the uncertainty,” she says, “We just have to figure out what matters.”

Leland Rucker

Leland Rucker

Leland Rucker is a journalist who has been covering the cannabis industry culture since Amendment 64 legalized adult-use in Colorado, for Boulder Weekly, Sensi and now TheNewsStation.com. He covered the popular music industry for years, worked extensively in internet and cable news, and co-authored The Toy Book, a history of OK Boomer playthings. Sweet Lunacy, his documentary film co-written and produced with Don Chapman, is a history of the Boulder music scene from the 1950s through the 1980s. He is author and editor of Dimensional Cannabis, the first pop-up book of marijuana.

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