Lucid Lab Co-Founder: This Is The Worst Possible Time To Raise Capital
As the U.S. tallies more coronavirus cases than any other country, nearly every industry has been brought to a halt.
The cannabis sector, meanwhile, will trudge along, according to Jim Makoso, co-founder of Lucid Lab Group.
U.S. cannabis sales in 2020 will "pare back from previous years, but not quite as bad as the rest of the consumer-based market," Makoso told Benzinga.
Cannabis is akin to other consumer staples and vices, such as beer and wine, which tend to outperform other areas of the market during times of financial difficulty, he added. However, startups that were in fundraising mode or in need of loans, will be in dire straits as funding freezes.
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Makoso took some time to discuss this precarious situation, and how Seattle-based Lucid Lab is coping.
Lucid recently dealt with industry-wide vaping scrutiny. That feels like years ago since the COVID-19 pandemic swept the U.S. BZ: How are you and your team doing?
JM: Lucid Lab is dealing with this COVID-19 pandemic like any other small business. We’ve gone remote. Our Nevada-based business is dealing with a complete shutdown of all cannabis retail storefronts so we’re facing some challenges in the immediate future. We’re finding the need to navigate the systemic impact on our business on multiple fronts.
Despite all that, no one on our team has tested positive for COVID-19 and everyone seems to be in good health. So, we’re thankful for that.
Back in September, you noted how companies making safe vaping products will succeed. Any thoughts on how a cannabis company will succeed during and after the pandemic?
The vaping issue of last year and what’s happening today with the global COVID-19 pandemic are two completely separate issues effecting the cannabis sector in different ways.
The COVID-19 pandemic is a global event having far reaching implications. The unforeseen impact it’s having on the economy due to global “stay at home” and “shelter in place” guidance could not have been predicted. The consumer impact is directly affecting the economy as people are simply not spending because they are encouraged to stay home. Add to that the drastic increase in unemployment, and there will be a catastrophic drop off in consumer spending around the world.
Since this is so new, it’s tough to predict precisely how this will impact the cannabis sector. However, we can use other global recessions in recent memory to get an idea of what to expect for the cannabis sector.
One thing demonstrated in the recession that started in 2008 is that consumer staples and consumer vices seemed to outperform other areas of the market. As it turned out, people were still buying beer, wine, toilet paper, soap, and toothpaste albeit less frequently and with higher sensitivity to price. I anticipate a similar trend in the cannabis sector. Consumers will likely buy products that are priced at the lower end of the market while purchasing less frequently.
In 2020, I expect the U.S. cannabis sales to pare back from previous years but not quite as bad as the rest of the consumer-based market. On the development side, we anticipate investors to pause on new investments into the sector as they shore up capital reserves until there is more stability in the overall market. Given the recent drop in the U.S. equities market of more than 30%, a lot of investors are a bit hesitant to take on new “risky investments” of which the cannabis sector seems to be at the top.
With respect to projects that have already been funded, or are already under construction, we anticipate these projects will continue with a higher focus on remaining on budget and potentially slightly over time due to a reduced workforce in many places.
What's Lucid's biggest expense?
Lucid Labs expenses are primarily tied to R&D and manufacturing. Our headquarters is based here in downtown Seattle. Our building is a 6,000-square-foot licensed cannabis R&D and product manufacturing facility. A fair amount of our expenses are tied to the operations at our headquarters.
Without getting into details, we were in the process of finalizing our paperwork to begin a capital raise. The proceeds of the raise were to expand our Washington and Nevada operation, while providing support to grow operations in new States where we have a foothold with future partners. With the state of the market, this is the worst possible time to try and raise capital, so we’ll be putting that on hold until there is a more stable market environment.
Have you had to rethink or pivot Lucid's 2020 strategy?
From a business standpoint, COVID-19 has definitely forced us to analyze our strategy for 2020 and 2021 and gauge if it was still sound in a contracting consumer market. This process is still underway so it’s unclear if anything will change with respect to our longer-term strategy. However, as far as going to the capital markets to raise funds in the immediate future, this has undoubtedly been postponed. As far as we can tell, all lending institutions have ceased lending operations and venture and angel funding seems to be on hold in the short term. We’ll still be ready to hit the capital markets when things normalize, but who knows when that’s going to be.
These are trying times. Undoubtedly there have been a lot of layoffs in many sectors including the cannabis sector. There is so much uncertainty day to day with respect to the guidance being provided by the state and federal government. Many businesses, including ours, are just trying our best to weather the storm and find opportunities to strengthen our position while keeping our teams health and best interest at heart. We’re doing our best to keep our whole team employed during this time and intend to continue to do so.
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Photo courtesy of Lucid Labs.
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