COVID-19 Impact on Cannabis Industry & Bankruptcy Outlook – 13 April 2020

Could you outline the key trends and dangers to the North American cannabis industry?

How might the shelter-in-place order in Ontario impact the retail roll-out of cannabis? How effective do you think curbside pickup and delivery of emergency orders will be at capturing demand during the coronavirus pandemic?

The cannabis sales surge in the US seems to have been relatively short-lived. Could Canada also experience a short-term uptick, followed by longer-term YoY declines?

How might the sales surge lead to improved industry pricing, if at all? What could be the long-term pricing implications of the coronavirus pandemic?

What revenue or EBITDA impact on the cannabis industry do you think will result from a recessionary environment, perhaps drawing on your experience in consumer discretionary during the 2008 global financial crisis?

You suggested that forecasts for legal markets in Canada and the US had consistently overestimated revenues. A common school of thought in the US has been that as federal regulation of legal cannabis expanded, MSOs [multi-state operators] would experience growth via cross-border transportation. What other factors, apart from the delay of that expansion, might have led to this overestimation? What is your more realistic outlook for the market?

It seems marketing and market research has been lacking on the part of industry players, specifically in Canada. Do you think the regulatory environment in the US is still the primary barrier to industry growth? What other factors should we consider in some of the larger legalised states such as Colorado, California and Washington?

How do you think consumers perceive CBD? Why do they turn to it? What are your thoughts on the CBD market?

Could you identify any THC or CBD product categories as more ripe for growth? Do 1.0 THC products such as flowers and oils have lesser prospects than the 2.0 products you’ve described, such as infused gummies and beverages? FDA [Food and Drug Administration] regulation would certainly be a catalyst for CBD products – are there any you’re more optimistic about there?

It sounds as if Canadian LPs’ [licensed producers] balance sheets have overstated asset values. Could you outline the magnitude of the write-downs these players will have to take on their PP&E [property, plant, and equipment], inventory and other tangible assets? Could you frame the market value of production assets vs their cost bases?

How large a cost increase could the coronavirus pandemic cause for Canadian LPs? It sounds like some have taken measures including implementing social distancing, paying employees more and increasing sanitation. Could this situation present a bottom-line headwind?

What is your outlook for the international expansion opportunity for North American cannabis producers? It seemed Aurora had positioned itself well via the German tender operations based out of Portugal. Are you optimistic about international growth? Should producers focus on stabilising their core markets before expanding elsewhere?

Some players are already reducing CAPEX through 2020. Do you think this is the new normal for the industry, as you alluded to earlier? Will optimisation separate out the leaders and laggards? Could vertical integration occur as well as other cost efficiencies? How could this materialise?

What would it take for Aurora to turn around the business? It seems as if the company has consistently underperformed and had operational issues. Do you think recently appointed CEO Michael Singer and a change in management can right the ship? Is it too late? How do you evaluate some of the larger producers, such as Cronos, Canopy, Curaleaf and Tilray?

What KPIs would you be monitoring now vs 1-2 years ago to assess companies’ health and growth potential?

Is there anything else we should highlight about the North American cannabis industry?