Ecosystems

Chapter 11 Not An Option For Cash-Strapped Cannabis Companies

Marijuana companies' exuberant bubble has quickly burst after just one year. The harsh reality of a cash crunch looming and burdensome U.S. regulations impede growth potential, according to reports. Cannabis stocks have been down by nearly two-thirds since March.

The situation is so bleak that some marijuana companies may run out of money in a matter of weeks, Bloomberg reported Tuesday (Dec. 17). But unlike other businesses, cannabis companies aren't allowed to declare bankruptcy under Chapter 11 because U.S. federal laws still view cannabis as an illegal drug.

If the companies do go bust, they will be blocked from asking for protection in bankruptcy court. An unidentified senior executive at a large cannabis company told Bloomberg that as many as a dozen smaller firms might fail by the second quarter of 2020. The executive also stated, “In the past three months companies have been calling more frequently with urgent, last-ditch attempts to be acquired.”

The smallest players in the cannabis market are, for the most part, struggling and at risk. However, larger firms' dollars are also running low. MedMen Enterprises in Los Angeles announced on Dec. 11 that it laid off another 20 percent of its corporate staff, resulting in a total staff reduction of more than 40 percent since initial layoffs in November. Ongoing cash crunch problems have caused the dispensaries company to issue $27 million of its shares at 43 cents each, a share price 14 percent below its Dec. 10 closing price.

With the cannabis firms unable to seek Chapter 11 protection from a centralized sale process or creditors, the bankruptcy process is left at the state level.

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