Cash is king in high growth, cash-burning industries like cannabis and those without it won’t be around for long. This article:

1. identifies two companies that have already filed for bankruptcy,
2. provides a table showing liquidity by company so you can see how many years of cash are left for each and
3. provides details of convertible debentures coming due in the next few months which will necessitate new re-financing or bankruptcy by the affected cannabis companies.

The First Of Many Bankruptcies

The two Canadian cannabis companies that filed for bankruptcies last week were:

1. Wayland Group Corp. (OTCQB: MRRCF) has announced that it is seeking creditor protection and restructuring with the suspension of trading last week due to late securities filings.
2. AgMedica, a private licensed producer in Canada, has filed for creditor protection after banks pulled out of a potential financing deal. The company was planning to go public this year but it shelved the IPO due to adverse market conditions.

Now that financing has dried up for all but a handful of large LPs in Canada, bankruptcies could well become more prevalent in the future.

Months Of Cash Left* - By Company

Source: Sedar, Grizzle Estimates *Using 9/30/2019 Balance sheet and capital raises through November 20th

Many Convertible Bonds Coming Due

Exacerbating the cash flow problems with many of the above companies is the fact that some have convertible debentures, issued in 2018 on two year terms, that are about to come due.

Convertible bonds, notes or debentures are a form of debt that gives the holder of the debt instrument a regular interest payment (called a “coupon”), either for a fixed amount of time, or until the stock trades above a target price that triggers a conversion event but, given depressed stock prices, the conversion of the share price is far less likely within the prescribed time period and, therefore, the company will have to roll over the debt into a new financing and rolling over into a new round of convertibles or equity would result in a super dilution event. Here is a list of 10 issuers that are currently in precarious situations as a result of their current debt load and their likely inability to pay off the debt under current cash reserves.

Recommended Course of Action

The two bankruptcy announcements last week should serve as a stern warning to investors. If the current market condition for cannabis stocks persists into 2020, we think financial risks will cause more firms to collapse and, therefore, it is extremely important to:

• avoid players with weak balance sheets and
• avoid assuming that cash flow could improve drastically in the near future.

Only firms with a visible path to profitability and self-funding should be considered.