There are 23 wildfires raging through California right now, with scores dead and missing. As many are losing their homes, it almost seems vacuous to talk about what it means to ones share portfolio, but there’s certainly going to be an economic impact in the California cannabis scene.
Grows north of San Francisco are in particular peril, with the owners of those facilities unable to obtain insurance due to the ongoing federal illegality of their state- and municipal-approved businesses.
“Nobody right now has insurance,” said Nikki Lastreto, secretary of the Mendocino Cannabis Industry Association. “They might have insurance on their house, but not on their crop.” […] Derek Peterson, CEO of Terra Tech, which grows and sells marijuana in California, estimates that farmers typically invest upward of $5 million in their facilities and as much as $3 million on growing the crop itself.
“If their facilities burn down, a lot of these people won’t be able to get any economic relief for them from an insurance claim,” Peterson said. “There’s no mechanism for recovery to repay them for their loss. It’s a tremendous risk for these people.”
Josh Drayton, spokesman for the California Cannabis Industry Association, said it’s too early to tell just how many of the state’s estimated 10,000 to 15,000 marijuana farms have burned down.
He expects “the devastation is going to be larger than anybody would hope it to be.”
It’s tough to tell what sort of impact this will have on many businesses in the state, with dispensaries, value-added product developers, and extractors drawing from a widespread network of suppliers. Lifestyle Delivery Systems (LDS.C), as an example, tested suppliers from across the state to narrow down the product they would use in their extraction facility, and had to go some distance to find the quality and organics they needed.
LDS ultimately decided to build their own grow facility to lock down supply, in Coachella, California. That area is not threatened by the fires currently.
One company that is experiencing a major sell-off based on the fires is Pacific Gas and Electric (PCG: NYSE), which is down 18% over five days, on the back of the possibility that its wires may have caused the disaster. Goldman Sachs downgraded the stock over the weekend as a result.
Utility companies are still paying for similar losses in fires from a decade ago, and the estimated $65 billion in damages from these fires are growing quickly. PCG’s liability insurance is reportedly capped at $800 million.
Meanwhile, Canadian cannabis companies with US marijuana exposure are bouncing back a day after the TSX put out a warning that they may be delisted if found to be involved in activities that are federally illegal in the US. The CSA quickly responded with a ‘not so fast’ that said it would be satisfied if such companies put out appropriate risk warnings.
Major players such as Canopy Growth Corp (WEED.T), Aphria (APH.T), Supreme (FIRE.T), Aurora (ACB.T), and Emblem (EM .V) shifted by a few percentage points, if at all, on the day. Aphria had plunged Tuesday after the warning, due to its involvement in a Florida medical marijuana investment, right as it was announcing a private placement financing.
The news doesn’t appear to have dampened institutional support for ‘Big Cannabis’, with Aphria moving forward on its $80 million bought deal, and Supreme upping their bought deal debenture financing to $35 million a day after setting it at $30 million.
The company intends to use the net proceeds of the offering to partially finance the development of its facilities in Kincardine, Ont., and for general corporate purposes.
The company had a significant amount of cash on hand pre-financing, which has tongues wagging about what it might be looking to really use the money on.
— Chris Parry
FULL DISCLOSURE: Lifestyle Delivery Systems is an Equity.Guru marketing client.