The COVID-19 crisis is creating an untold amount of uncertainty through every business sector, but for cannabis startups, it’s exacerbating a critical market that was already in decline.
TechCrunch spoke to Schwazze CEO Justin Dye following his company’s recent rebrand. He joined the company when it was Colorado’s Medicine Man Technologies (MMT) in late 2019 and is revamping the organization, including changing its name to Schwazze and acquiring a handful of companies to create a healthier, vertically integrated cannabis company.
The cannabis market is experiencing a correction after a period of rapid expansion. Shops are feeling the pain, and public valuations are settling under IPO levels — and this was before a pandemic swept the world. Cannabis media outlet Leafly laid off 91 employees in late March, and Eaze, an early mover in on-demand pot delivery, is experiencing major trouble after raising serious cash and recently losing a top partner in Caliva. In several states, efforts are underway to prop up the cannabis market by asking for the federal government to allow these businesses to be eligible for federal financial relief.
According to Dye, there are several things CEOs of cannabis companies of every size should work toward. His advice echoes what TechCrunch has heard in other verticals, as well: During the COVID-19 crisis, cannabis companies must hunker down and lean on strong teams to weather the storm. Once the skies start to clear, capital will be available to the survivors.
One, the cannabis market is looking for financially sustainable companies, Dye said.
“This next reset in the cannabis industry will not only be aspirational, but it’s going to be coupled with a requirement for performance in terms of executing against a plan and driving profits — or driving it to create free cash flow to be reinvested in the business and product experiences.”
Dye believes investors are now looking for experienced teams. For his company, Dye just brought on James Parco, PhD, a tenured professor at Colorado College and founder of Mesa Organics and Purplebees.
“[Investors] are looking for very strong management teams that know how to deal with difficult times and can manage cash and growth,” Dye said. “Teams that do not bite off more than they can chew and can deal with complexity. Teams need to be credible and able to carry the message to Washington, state capitals, and carry out the lobbying efforts. More than anything, [investors] are looking for management teams that are good stewards of capital.”
And right now might not be the time to raise money. Dye advises to be “very, very careful” with capital and try to survive through the COVID-19 crisis. He believes investors are not going to deploy new capital as most are ensuring their portfolio companies will survive the crisis.
Instead of raising cash, Dye says, refine your strategy and plan to raise capital at the end of the summer.
The cannabis market will survive the COVID-19 crisis, but some companies will not. Just like startups in other markets, those companies that reserve capital and look for guidance from experience will have the greatest chance to see the other side.
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