COVID-19 and the Cannabis Industry What you Need to Know Webinar - - PowerPoint PPT Presentation

3C Confidential

COVID-19 and the Cannabis Industry

What you Need to Know

Presented by: Nic Easley Founder & CEO Webinar March 25, 2020

3C Confidential

Disclaimer

Personal

I apologize in advance if I offend you, your state, country, company, or

• ideas. All of my observations are based on my 14 years of experience in

legal medical and recreational cannabis programs both foreign and

• domestic. I have no personal bias, these are just the facts, and i’m not
• guessing. Sorry in advance, but you can’t fix stupid.

Legal

This presentation is not intended as an offer, a solicitation of an offer, or an advertisement for the sale of securities in any jurisdiction. Any such

• ffer or solicitation, if made, will only be made by means of appropriate

disclosure documents delivered confidentially to certain qualified accredited investors. I am not a lawyer nor am I an accountant. USE THESE PROFESSIONALS!!!

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3C Confidential

My Background

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• 14 Years of experience in the legal cannabis industry
• Veteran of the United States Air Force
• Worked with over 500 cannabis companies in 17 countries,

34 U.S. states, and two territories

• Founder & CEO of 3C Consulting, LLC™
• CEO & Managing Director of Multiverse Capital
• Co-Founder & Strategic Advisor to Cannabis & Hemp

Benchmarks, world reports on cannabis industry pricing

• Served on numerous state and international regulatory

boards, including Board of Directors of Americans for Safe Access (ASA), the United Nations advisory panel, National Cannabis Industry Association (NCIA), CCIA and CDA

• Former Colorado Mountain Guide, 10 Grand Canyon Private

River Guide Trips, Hiked the whole Appalachian Trail

• Love Crushing it in Cannabis

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Presentation Outline

• COVID-19 - What are we dealing with?
• Immediate actions for your business
• Worker protection regulatory changes
• HR considerations
• Cannabis dispensaries deemed “essential”
• Emergency regulatory changes
• Business Strategy in the face of adversity
• Small business aid
• Impact of retail sales
• Supply chain status
• Global market dynamics
• Access to capital
• Additional COVID-19 impacts
• Best practices for each business type
• Downfalls and losses from COVID-19
• Opportunities
• Thoughts on COVID-19’s impact on the

future of the industry

• Q&A

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COVID-19 - What are we Dealing with?

• Symptoms

(Appearing 2-14 days after exposure): ○ Fever ○ Cough ○ Shortness of breath

• How it is spread:

○ Close contact with other people ○ Respiratory droplets from coughs or sneezes ○ Clothing ○ Airborne (up to a few hours) ○ Infected surfaces (up to three days) ○ Asymptomatic individuals can spread it

• Actions to reduce the likelihood
• f catching the virus

○ Practice social distancing ○ Stay home if you’re sick ○ Cover coughs and sneezes ○ Wear a face mask if you’re sick ○ Frequently wash hands and disinfect surfaces

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Immediate Actions for your Business

• Employee and Customer Safety is the Top Priority

○ Stay up-to-date with the latest information from sources like the WHO, CDC, OSHA, and local health departments ○ Allow employees to work from home if possible

• Communication

○ Develop a plan for communicating the latest updates and practices to your employees ○ Involve your employees in developing internal plans and keep them informed of the company specifics ○ “Communicate with fervor, frequency and healthy fanaticism” - Mazakali

• Check Up on Business Vitals

○ “Stress test your P&L and liquidity with worst-case assumptions” - Mazakali ○ Review language related to “disaster” in any key contracts ○ Review your insurance policies to see if you have coverage for situations like this

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Worker Protections that Employers Need to Know

Families First Coronavirus Response Act - Signed into law on 18 Mar

• Applicable to all employers with fewer than 500 employees
• All employer-sponsored health plans need to cover costs and services related to COVID-19 testing without cost-sharing, prior

authorization, or other medical management requirements

• The Family and Medical Leave Act (FMLA) has been temporarily expanded to allow eligible employees up to 10 weeks of paid

FMLA leave with a 10-day “waiting period” if they are unable to work or telework as a result of caring for a child whose school is closed or whose child care provider is unavailable due to COVID-19

• The 10 weeks of leave will be paid at two-thirds the employee’s regular rate of compensation for the employee’s expected

hours, capped at a maximum payment of $200/day and a total payment of $10,000

• Employers must provide emergency paid sick leave for those unable to work or telework if the employee is quarantined,

self-quarantined, caring for a child whose school or childcare is closed or experiencing symptoms and seeking a diagnosis

• Eligible full-time employees are entitled to 80 hours at their regular rate of pay, limit $511/day and $5,110 in total
• If the employee is caring for a family member, they are paid two-thirds their regular rate of pay, limit $200/day and $2,000 total
• Eligible part-time employees are entitled to the equivalent rate of pay for an average number of hours during a two-week period
• An employer may not require an employee to use available sick leave before these payments are made
• By March 25, 2020, the Department of Labor is required to issue a model notice for employers to post in a conspicuous place

informing employees of this paid sick leave

• Guidance for businesses with less than 50 employees will be available in April, there will be exemptions to the above
• Employers providing emergency FMLA or paid sick leave under the Emergency Paid Sick Leave Act are entitled to refundable

employment tax credits equal to 100 percent of these wages paid

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Additional HR Considerations

• Update sick leave policies to encourage the ill to stay home

○ Eliminate the need for a doctor’s note to validate an employee’s condition

• Post COVID-19 signage in the workplace encouraging:

○ Employees to stay home when sick ○ Proper cough and sneeze etiquette ○ Consistent handwashing

• Provide necessary cleaning supplies
• If an employee is showing symptoms:

○ Kindly separate them from the rest of the staff and customers ○ Ask the person to travel home and contact their primary caregiver and/or the local health department ○ Ask all staff to wash their hands and avoid touching their faces ○ Contact your local health department ○ Follow cleaning procedures outlined by your local health department

• If downsizing make decisions based on non-discriminatory business

related terms

• If an employee is confirmed to have COVID-19 inform the rest of the staff

while maintaining confidentiality as required by ADA

• It is your responsibility to provide a safe and healthy workplace for all

employees

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• Americans for Safe Access (ASA) sent a letter to

governors and state regulators urging them to prioritize the needs of medical cannabis patients when creating emergency COVID-19 plans

• San Francisco and Los Angeles were among the first

municipalities in the country to deem cannabis dispensaries holding a medical cannabis license essential

• States and jurisdictions around the country have

since followed suit, declaring medical marijuana dispensaries “essential” services akin to pharmacies

• Recreational businesses should also be seen as

essential since many adult-use customers use cannabis for therapeutic purposes and aren’t necessarily official medicinal patients

Cannabis Businesses Deemed “Essential”

Medical (and some recreational) Cannabis businesses deemed essential or allowed to

• perate via delivery only.

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Emergency Regulatory Changes

Curbside Pickup

• Arizona - Local Considerations
• California - Local Decision
• Connecticut
• Delaware
• Illinois - Medical Only
• Iowa
• Maryland - Local Considerations
• Massachusetts
• Michigan
• New Jersey
• New Hampshire
• Oregon
• Pennsylvania
• Washington

Delivery

• Arizona
• California - Local Decision
• Connecticut
• Florida
• Maryland
• Massachusetts - Medical Only
• Michigan
• Missouri
• New Mexico
• New York
• Nevada
• Oregon
• New Hampshire
• Pennsylvania - Via Caregiver

Mandatory Pre-Ordering

• Massachusetts

Additional Regulatory Changes

• Shared “sniff jars” suspended - Maryland
• Delivery is currently available for hospice

patients - Connecticut

• Consumption lounges closed - California,

Denver, CO, Nevada

As of 24 Mar 2020

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Business Strategy in the Face of Adversity

• Cash is King/Queen

○ Redirect company resources to prioritize maintaining cash flow ○ Review business expenses and reduce all non-essentials ○ If you do not have adequate cash, access to capital is vital ○ Tight cash management can provide investment fuel

• Strong Offense

○ Create an action plan that addresses numerous potential scenarios ○ Plan for redundancy of core operational components

• Don’t stray from core business

○ Divest non-core assets to further invest in your core business ○ New offerings have inherent risks, require investment, and may divert too much resources away from your core business ○ Focus on a few core products or services and strive for quality

• Focus on retaining customers rather the obtaining new ones
• Prepare for large shifts in consumer behavior
• Small businesses have the advantage of being nimble and adaptable
• Stabilize your business and act as though this is the new normal

“Tough People Last Longer Than Tough Times”

Thoughts from Mazakali Focus on:

• Others over Yourself
• Opportunities over Losses
• Value Creation over Selling
• Today over The Future
• Gratitude over Complaints
• Responses over Occurrences
• What You Have over What You Don’t
• Relationships over Transactions

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Small Business Aid

• Extended tax filing deadlines, state and federal
• State-specific aid programs

○ State allocated SBA emergency funding ○ Deferred business tax and licensing fees ○ Utilities relief ○ Disaster relief fund ○ Eviction relief ○ Funds allocated from the Federal government to the above state programs are managed by the state therefore cannabis business could be eligible

• State-licensed cannabis business will not be eligible for Federal financial

assistance or low-interest loans

• Legislation in the works to provide non-discriminatory access to capital for all

small businesses ○ Ensuring Safe Capital Access for All Small Businesses Act of 2019, HR 3540 ○ The Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act, HR 3884

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Impact on Retail Sales

• Initial Sales Spike 13-16 Mar Across the United States and Canada (BDS Analytics, Headset)

○ 13 Mar - U.S. adult-use retail sales data compared to the 75-day avg (CA, CO, OR, NV) ■ 71% increase in daily sales ■ Average basket size increased by 25% ○ 16 Mar - Year-over-year sales increases for adult-use retail ■ 159% in California ■ 46% in Colorado ■ 100% in Washington state ○ Increased foot traffic ○ Increased basket size

• Top selling product categories during sales surge

○ #1 - Flower ○ #2 - Edibles

• Sales declined last week with below average weekend sales

○ 21 Mar - Year-over-year sales for U.S. adult-use retail ■ 23% in California ■

• 19% in Colorado

■

• 2% in Washington State
• Adult-use market consumer survey (Brightfield Group)

○ 50% of report plans to stock up ○ 32% plan to use cannabis more frequently during self-quarantine Source: MJBiz Daily

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Supply Chain Status

China

• China’s economy has been largely impacted, affecting raw materials and

the global supply chain

• May take up to six months for it to recover
• Vaporizers, packaging, and hydrocarbon gases used for extraction, and

more face shortages from Chinese suppliers Localized cannabis supply more resilient against supply chain disruptions

• 20% of dispensaries surveyed reported supply chain issues mostly for

standard supplies (Ex. Toilet paper) – BDS Analytics survey

• In comparison, one survey conducted between Feb. 22 and March 5 found

that 75% of U.S. companies have experienced supply chain disruption as a result of the COVID-19 outbreak What you can do to establish a resilient supply chain

• Cultivate an in-depth understanding of your supply chain beyond critical suppliers and what their stress points are
• Develop and follow a systematic supply process that takes potential disruptions and stress points into account
• Ask your suppliers detailed questions that elicit evidence-backed responses

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Global Market Dynamics

• Technically we were due for a correction after the longest bull market in

history

• Goldman Sachs reports that the private banking sector is very well

capitalized and there is no systemic risk

• The total stimulus is expected to cost "roughly" $6 trillion, with $2 trillion

appropriated by Congress and $4 trillion in liquidity from the Federal Reserve (A final decision is expected today, Wednesday, March 25th)

• Public markets have tanked furthering the losses for public cannabis firms

○ Horizons Marijuana Life Sciences Index ETF (HMMJ.TO) has dropped nearly 30% in the past 30 days ○ Tilray (TLRY) has dropped by over 75% in the past 30 days ■ Tilray peaked at $214.06 on 19 Sep 2018 ■ Tilray closed at $4.07 on 24 Mar 2020 ○ Aurora Cannabis Inc (ACB) has dropped by 50% in the past 30 days

• Recession proof

○ While adult-use legal cannabis has never been through a recession it will likely perform similar to alcohol which increased by 9% in 2008 and 1% in 2009

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Access to Capital

• 2020 Pre-Coronavirus

○ U.S. cannabis businesses listed on Canadian exchanges or with

• perations in Canada were turning to Canada for bankruptcy

protections ○ Cannabis stocks have been in a bear market for almost a year ■ Public cannabis company stocks are down more than 75% off their early 2019 highs ■ Access to capital has always been a major challenge over the last year

• Coronavirus impacts

○ Investors less likely to invest in early-stage cannabis companies considering current risks ○ Competition for capital far outweighs the supply ○ We will see a drop in company valuations

• Who is positioned to weather the storm?

○ Private cannabis companies that have raised capital recently and have cash on their balance sheets ○ Investment managers with liquid assets, positioned to deploy capital and take advantage of opportunities that wouldn’t have

• therwise existed
• If your business is in need of capital you need to be offering something special and have the highest standards of compliance,

product quality, and customer care

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Additional COVID-19 Impacts

• Progress toward legalization likely to slow in the short term

○ Coronavirus already has caused a number of state legislatures to temporarily shut down, including Connecticut, New York, Vermont, ○ New York Gov. Andrew Cuomo intended to legalize adult-use cannabis via this year’s state budget, their fiscal year starts April 1st ○ Signature collection for pending ballot measures will be difficult ■ Ohio - 443,000 valid signatures needed by July 1

• Trade shows cancelled and postponed
• Centers for Disease Control and Prevention (CDC) medical cannabis

recommendations ○ CDC has warned that smoking marijuana should be avoided during the pandemic, especially sharing smokables. ○ CDC has instructed medical cannabis patients to have at least one month’s supply in hand also instructed people depending on marijuana for medical use to have at least one month’s supply in hand

Best Practices for Each Business Type

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General Guidelines for Cannabis Operations

• Follow local, CDC, and OSHA guidelines for workplaces and/or laboratories.
• The White House is urging against gatherings of more than 10 people. To minimize

potential exposure, be sure that employees maintain at least a six foot distance from each other and that operations are ran with a bare minimum of employees.

• Wear masks, hairnets, aprons, and gloves when processing and packaging cannabis
• products. Personal protective equipment should be provided by the employer.
• Wash aprons, gowns, and work clothing after each use.
• Encourage employees to take their temperature when they show up for work
• Sterilize work surfaces, door handles, and common areas daily to encourage a

sanitary work environment.

• Perform routine cleaning of your facility daily
• Wash your hands frequently for at least 20 seconds with soap and warm water or

use hand sanitizer if soap and warm water are not available.

• Recipe for effective hand sanitizer if you cannot find available stock:

○ Glycerine, hydrogen peroxide solution (at least 3%), and isopropyl alcohol (at least 60% alcohol).

• Use products that feature an EPA-approved disinfectant label with claims against

emerging viral pathogens.

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Cultivation

• Cultivation facilities need to be maintained throughout

the pandemic

• Keep your on-site team to a minimum
• Identify all essential tasks and ensure you have the

workforce to perform them

• Are their practices that can be further automated
• Strictly adhere to all local, CDC, and OSHA guidelines
• Communicate daily with all staff, notifying them of any

changes in protocol and check in on their health

• Sterilize work surfaces, tools, door handles, and common

areas daily to encourage a sanitary work environment.

• Perform routine cleaning of your facility daily.
• If you do not current use personal protective equipment

such as coveralls, masks, gloves, shoe covers, safety glasses, etc. consider adopting their use

• Otherwise, consider providing uniforms and washing

them on a regular basis to ensure they are clean

“On the cultivation and distribution front of the cannabis industry, many growers and

• ther employees can’t do their job offsite, so

companies are taking precautions to keep workers safe.” –Green Flower Media 18 Mar

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Extraction, Manufacturing, and Distribution

• Production halted in factories across China with millions of workers quarantined. Factories are slowly

re-opening, but they are operating well below capacity

• To accurately evaluate the financial viability of a manufacturing partner, companies should establish audit

rights

• The shift in how cannabis is being sold to consumers will likely require product manufacturers to shift to

e-commerce marketing strategies as eye-catching packaging could become obsolete

• Prices could rise if consumer demand continues to rise and cannabis supply diminishes due to distribution

slowdowns – McVey

• Is there demand for your products?
• What is the shelf life of your products?
• Can COVID-19 be transmitted via your product?
• Cleaning procedures?

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Retail

Challenges for cannabis retailers that remain open:

• Employee reassignment to handle the abundance of online orders, curbside deliveries, and or

home deliveries

• Quickly onboarding new employees to compensate for hospitalization or self-quarantine
• Figuring out how newly adopted short-term business models might fit into their permanent

strategies in the future

• Inventory management and balancing pre-orders with actual pick-ups to fulfill orders accurately
• Identifying technology to use (both hardware and software) for new processes that are both

efficient and compliant Retailers are getting creative and:

• Putting in place a dedicated team that fulfills online orders
• Limiting the number of customers that can enter the store at one time in states where curbside

pickup or delivery is prohibited

• Strongly encouraging customers to pick up orders promptly
• Pre-scheduling customers through an appointment only system
• Encouraging customers waiting in lines to stand six feet apart and marking that distance with

tape marks on the floor

• Implementing deli-style numbering systems and having customers wait in their cars

For dual medical and adult-use retailers:

• Take measures to protect medical patients where possible by limiting their exposure to others.

Remember they are a more at risk group

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Additional Retail Precautions

In addition to the general guidelines listed previously, retailers should do the following:

• Customers

○ Encourage pre-orders and pickups to avoid long lines and crowds ○ Offer hand sanitizer at the checkout counter or at the door and provide lined trash cans ○ Do not allow customers to put their nose or mouth near the product when purchasing cannabis ○ Put up signage regarding hand washing and not visiting establishments if customers feel unwell

• Employees

○ Provide disinfectant wipes to sanitize surfaces & door handles throughout the day ○ Use gloves and avoid touching your face after handling paper money ○ Should maintain a 6 foot distance for each other whenever possible ○ Staff checking identification for age verification must sanitize/wash hands after handling each ID

• Operational Strategies

○ Keep retail products in cases and avoid excess customer handling of the products ○ Request that your suppliers wear gloves when delivering products ○ Avoid sharing chopsticks and other utensils when weighing or handling cannabis ○ Pre-package cannabis products in a disinfected environment if products are not already pre-packaged ○ If your products aren’t pre-packaged, find out how to dispose of opened containers of product correctly by contacting your local health department ○ Do not lick hand-rolled pre-rolls to seal them ○ Consider closing early to allow ample time to clean and sanitize surfaces after each business day

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Delivery

• To decrease risk for your employees and customers you’ll need to

develop a comprehensive delivery protocol, including: ○ All of the latest CDC, OSHA, and local health agency recommendations ○ Personnel should wear personal protective equipment including gloves and a face mask, if available ○ Carry hand sanitizer and disinfectant wipes ○ Establish a regular sanitation routine for your facilities and staff, this includes all delivery vehicles ○ Avoid touching your face ○ Do not enter the customer’s home ○ Consider employee uniforms so that you can ensure clothes are regularly washed, as Coronavirus can live on clothing ○ Politely keep interactions with customers to a minimum and maintain distance ○ Communicate with your customers the measures that you are taking to ensure safety

• Delivery greatly reduces the overall likelihood of exposure in comparison with in-person retail sales
• Delivery is not legal in all areas so always review your local regulations first

3C Confidential

Data/Software/IT Companies

• Tremendous value in analyzing the current market
• Changes in ordering, pick-up, and delivery may

require new features in seed-to-sale software

• Easier for these companies to transition to a

remote work environment

• Store-to-door service software
• Automating ordering systems
• Digital marketing platforms

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Downfalls / Losses / What’s F’ed

• Capital is drying up
• Cannabis business will get squeezed

without access to adequate capital

• Business will fail
• Less potential new markets in the

short to medium term

• Everything is changing fast
• What worked won’t work anymore
• It was already hard, now, harder?
• WHO/UN Delay
• Volatility of IPO’s/Exit Multipliers
• Lung pandemic/consumer spending
• Everything. Everything is fucked

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Opportunities

• As existing business focus on their core business, it is less likely they will

focus on expansion into emerging markets ○ This may decrease the competition in the licensing process in emerging markets

• Entrepreneurs that focus on the following will emerge stronger than before:

○ Refining their core business ○ Nurturing their current customers ○ Properly managing their capital expenditures and operating expenses

• A Bain & Company report covering the financial performance of over 5,000

companies over a ten year period including the global financial crisis found: ○ Companies that reallocated resources toward their core business, continued their marketing and R&D spending, and retained their current customers (amongst other factors) grew at a 17% compound annual growth rate (CAGR) during the downturn ○ Companies that did not implement these changes had a 0% CAGR over the same time frame ○ After the recession, the winning companies maintained an average 13% CAGR for years to come ○ The other companies stalled at a 1% CAGR post-recession

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How COVID-19 will Impact the Future of the Industry

Industry Resilience as cannabis businesses are deemed “essential”

• May speed up regulatory progress at the state and federal level as budgets become

tighter due to decreasing tax revenues

• Compared to the 2007-2009 recession, cannabis use in the US was up and it seems that

use will hold or even grow if a prolonged economic downturn occurs Shift in Purchasing & Consumer Behavior

• Consumer purchasing habits could shift away from in store purchases/ rise of

e-commerce

• Once regulations that curtail delivery service are rolled back, it is possible that they

won’t be reinstated once the coronavirus crisis is resolved

• Opportunity for retailers to make shopping experiences more efficient for consumers
• Deli-style service is 37 percent less efficient in terms of sales per employee per hour

compared with pre-packaging and pre-ordering

• Google Trends data shows that searches for “Cannabis Deliveries” has more than

doubled from levels in January which probably won’t hold, but it is a promising indication that cannabis delivery growth, which has already been increasing over the past five years (Google Trends), will experience an additional surge when things settle

• Could accelerate the shift from alcohol consumption

Q&A

3C Confidential

For Investment Services: 1-303-261-8590 www.multiversecap.com admin@multiversecap.com For Consulting Services: 1-303-542-7199 www.3ccannabis.com info@3ccannabis.com Nic Easley Founder & CEO n.easley@3ccannabis.com