It’s in the nature of vulture investors to take risks, but those risks are exponentially higher when dealing with cannabis companies, as bankruptcy is not an option for those federally illegal businesses. “Normally, a vulture investor is going to take a first position security interest and will align themselves up to be the number one creditor in the event of bankruptcy or liquidity if the business doesn’t turn around,” Bricken says. This sets the table perfectly in favor of vulture investors. “I think the types of rates that cannabis companies were paying for their debt, up in the teens interest in some cases, you might start to see debt investors have opportunities in other sectors where they can get really high rates simply because there’s going to be so much distress,” he says.īurleson adds this will make it more difficult for cannabis companies to access capital when they might need it most. With that cash crunch spreading across the economy thanks to the supply chain gridlock accompanying the COVID-19 outbreak, investors have more options to make similar returns in less volatile markets. The biggest effect the pandemic brings to the market, according to Canaccord Genuity analyst Bobby Burleson, “is the potential for other industries to start to compete with cannabis companies for access to capital.”īurleson highlights how the cash crunch prior to the pandemic forced many investors to look at debt financing instead of equity financing in order to generate cash flow. “There has been an uptick, it’s not rampant, but it’s starting to become the finance vehicle of the year, and it’s probably not going to stop in the wake of the pandemic,” she adds. Since January, Bricken says, “very aggressive vulture investors and funds based around only debt buy-ups come to me not for representation-they already have attorneys-but asking ‘Do you have deals? Do you have deals that you can bring to us? Do you know anyone that’s dying or hurting?’ In a March 4 interview with CBT, Joe Caltabiano, former president of Cresco Labs, stated his interest in working with distressed assets after resigning from the company he helped launch Since January, she has seen a handful of new equity funds pop up that are targeted toward distressed assets. “Their whole model is to go after these businesses that are hurting,” Bricken tells Cannabis Business Times, “and here in California, that is not going to be difficult to find because the industry was already suffering before coronavirus.” They also generally attach more conditions to their investments, including taking ownership of the assets should the company continue to struggle (or, worse yet, after the company finds success). These investors are “wheeler-dealer” types, she says, and take on more risk in exchange for a much larger stake in the company (in equity deals) or massive interest rates (in debt deals). Vulture investment funds-investors that target “distressed assets” (companies that are near/at insolvency)-have been taking more interest in the cannabis industry, according to Hilary Bricken, attorney at Harris Bricken. Now, experts say these market conditions might exacerbate a phenomenon that was already taking off in the cannabis industry prior to the coronavirus outbreak: vulture investing. GDP is expected to take an even bigger hit in the second quarter, as the Congressional Budget Office (CBO) projects the country’s economy will shrink another 35% by the end of June.

gross domestic product (GDP) by 4.8% in the first quarter of 2020. The global COVID-19 pandemic and the ensuing stay-at-home orders have forced businesses to shutdown or drastically change their operations, distorted companies’ top and bottom lines, and shrunk the U.S. A reference to an equity fund that targets distressed assets has been removed. Editor's note: This article was updated on at 1:50 p.m.

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