TPCO - Cannabis Companies Look for Capital Pathways as Cash Crunch Deepens
Cash flow has been the talk of investors lately in the cannabis industry, as companies pivot from go-go growth to slow-go strategizing.
Tighter capital management and budgeting come as cash becomes more expensive and harder to grab.
“This change of focus makes great sense given the constrained cannabis capital markets, which are the most challenging we can remember,” Viridian Capital Advisors wrote in a recent report.
Viridian calculated an adjusted cash flow that assumes companies brought their tax liabilities to 90 days’ worth of taxes, as many tax debts have been deliberately left unpaid by companies as a way to use cash to fund operations.
“Investors are watching liquidity closely as this continues to be one of the most restrictive capital markets we can remember,” the firm wrote in a separate report on Wednesday, adding that the results were “somewhat concerning” for the bottom group with annualized cash flow from operations deficits larger than market caps.
The investment firm wrote, “Some companies like Tilt Holdings (CSE: TILT) would benefit from delaying their payment of taxes. Most other companies, especially those on the right side of the graph, already have more than 90 days of outstanding taxes.”
Significant deficits combined with sizable tax liabilities eventually creep up, such as when StateHouse Holdings (CSE: STHZ) agreed to enter a payment plan with the Internal Revenue Service. The company ended up only having to pay back around $5.8 million out of the $22.1 million it owed in federal taxes, adding the $15.8 million out of the $21.6 million it kept aside during the legal battles back into its sheet as positive noncash accounting adjustment.
Cannabis companies such as Cansortium (CSE: TIUM) oversaw solid cash flow generations during the most recent financial quarter.
Toward the bottom of the list is TPCO Holding Corp. (NEO: GRAM.U) (OTCQX: GRAMF), who had annualized cash flow from operations deficit was more than 250% of the market cap, “even before adjusting for taxes and subtracting capex” despite laying off a third of its workforce.
TPCO, which does business as The Parent Company and has rapper Jay-Z in its C-suite, informed investors last month that it may have to dip into its cash reserves when January rolls around if economic woes continue to affect operations.
In a statement, the California-based company warned that, “inflation and consumer softness has negatively impacted the company’s ability to generate cash from operations.”
“As a result, the company may slightly deviate from its objective of maintaining a minimum of $100 million cash balance” at the end of the year, depending on acquisition opportunities, TPCO disclosed.
Overall, total capital raises are down 62.6%, with equity capital raises down approximately 96.3%, according to Viridian.