Several cannabis companies like Cresco Labs Inc (CSE:CL) (OTCQX:CRLBF) were looking forward to 2020, expecting it to be a strong year. It was expected that the growth in sales of cannabis would shoot up as more states are permitting the use of cannabis legally. But, due to the coronavirus pandemic, many people are losing their jobs, limiting their expenses and making marijuana a luxury item for them. The little to no growth within the industry could prove to be troublesome for Cresco Labs.
As per the company’s latest earnings report- quarter three results in November- the company reported a fall in its cash balance (including restricted cash) to below $82 million on September 30, 2019, as compared to its December 31, 2018 figure of $92 million. $105 million were spent on the investing and operating activities by Cresco Labs.
The cash drain would have been worse had the company not raised additional shares and warrants worth $55 million. The company would and needs to cut down on its capital expenditure, but even that would help the company stay afloat is debatable. Being down by over 50% since 2020 makes it further difficult for the company to raise cash through equity markets.
Taking a loan from financial institutions also remains difficult as cannabis continues to be an illegal substance at the federal level. This scares off the financial institutions from associating themselves with the cannabis industry. To add to the woes, the federal government has denied helping the federally illegal companies – which could also include companies indirectly doing cannabis business – during the current pandemic woes.
The pandemic seems far from over; it might even take months for normal operations to run again. This would mean that people might already be in debt and might remain unemployed with jobs not being available as easily. With such an economic situation, it would be extremely challenging for companies like Cresco labs to come through. It might not be able to last over a year considering the capital spending and investments with the cash balance of $82 million (as of Sept. 30). The stock of the company is also at the risk of further decline.