Farm Credit Canada (FCC) said cannabis businesses hit by economic fallout from the COVID-19 pandemic are eligible to apply for short-term, government-backed credit and loan payment deferrals, a move that could provide a financial lifeline for some companies.
The credit, extended in the form of a loan, would come from a 5 billion Canadian dollar ($3.5 billion) pool of emergency lending capacity offered to FCC by the federal government.
In theory, the FCC program could help Canadian cannabis producers facing a crash crunch during the ongoing pandemic.
One cannabis industry executive, for example, said his profitable company was turned down by the government-owned agricultural lender.
The special CA$5 billion FCC credit facility was announced by Canada’s federal government Monday as part of a suite of economic measures to keep the Canadian economy afloat during the ongoing pandemic.
The new lending is in addition to the agency’s current portfolio, which federally licensed cannabis companies are able to apply for.
An FCC spokeswoman told Marijuana Business Daily that licensed cannabis producers are eligible to apply for the COVID-19 assistance program from the federal Crown corporation.
The program offers “loan payment deferrals and short-term credit products up to a maximum of CA$500,000 to assist with cash-flow needs,” the spokeswoman wrote in an email to Marijuana Business Daily.
According to the FCC website, the loan payment deferrals could include:
- Deferrals of principal and interest payments on existing loans for up to six months.
- Deferrals of principal payments for up to 12 months.
“Businesses applying for FCC lending products will be subject to normal lending due diligence, which considers business viability, credit history and management integrity and experience,” the spokeswoman wrote.
However, those businesses must also be “financially viable entities prior to the impact of COVID-19” to be eligible.
The FCC spokeswoman declined to specifically define “financially viable” in this context, “because each business is different.”
“Businesses need to speak with an FCC representative to discuss their individual situations,” the spokeswoman added.
Robert Fagan, a cannabis research analyst for investment banking firm Stifel GMP, said the financial viability requirement raises questions about whether many Canadian marijuana producers would qualify for the program.
“It’s a tricky thing to answer, because you could be a company that burns a lot of cash and has large EBITDA losses,” he said. “But if you have investors willing to continue to fund it, then that’s ‘financially viable.’ It depends over the time horizon that you’re looking at and the subsequent capital market conditions.
“But I would think that there are a subset of operators that are either EBITDA positive, or not burning a ton of money on a quarterly basis, that would potentially qualify for that.”
Dan Sutton, CEO of privately held British Columbia cannabis producer Tantalus Labs, said his company sought assistance from FCC after hearing about the CA$5 billion dollar lending capacity boost from the federal government but was rejected despite posting a profit for 2019.
“If our financial health was not sufficient to be able to justify this kind of lending, then it is my belief that no cannabis firm would be able to justify such lending,” he said.
Solomon Israel is a reporter for Marijuana Business Daily, based in Winnipeg. He can be reached at [email protected]