Tantalus Labs founder Dan Sutton says the Business Development Bank of Canada will not assist the ailing sector

More bad news could be on the horizon for the Canadian cannabis industry.

On Monday night, Dan Sutton, the CEO and founder of BC-based cannabis cultivator Tantalus Labs, tweeted that a senior account manager at the Business Development Bank of Canada — a Crown corporation mandated to help develop small and medium-sized companies through financing and other means — had notified them that they would not be providing relief to the cannabis sector.

As cannabis companies are increasingly feeling the impact of the pandemic lockdown with temporary layoffs and store closures, cash flow interruptions could lead to permanent closures for some businesses, Sutton said.

“With millions of dollars locked in biological assets currently in cultivation, companies like Tantalus Labs need the ability to ramp down and ramp back up over quarters — not months,” Sutton told The GrowthOp in an email. “We hope that the Government of Canada appreciates the cannabis economy’s contribution to our GDP, and can come to our aid so that we do not have to choose between employee safety or protecting their jobs.”

According to StatsCan, more than 10,000 Canadians are employed in the sector that represents $7.24 billion of the country’s gross domestic product. Last Friday, the BDC and Export Development Canada announced that they would increase loans by $10 billion, but offered little detail about how that liquidity will be allocated or if cannabis companies will be included.

“We are evaluating the situation as it evolves, including the needs of entrepreneurs and the impact on specific industries,” a spokesperson for the BDC told The GrowthOp in an emailed statement. “We are working on the details on how the program will work, and will share an update in the coming days.”

Lawyer Trina Fraser, a partner at Brazeau Seller Law, said the issue dates back to before the pandemic. There was an active lobbying effort to improve relations between the cannabis sector and the BDC, so the initial response offered to Sutton did not come as a surprise.

“The BDC has been pretty consistent in its position since day one of this industry that it wasn’t comfortable with it,” she says.

Fraser said that the BDC could still reverse course on this decision and that the unprecedented circumstances call for it.

“I don’t think you have the luxury anymore of just choosing to completely turn your back on an entire industry that employs thousands of people across this country and that’s perfectly legal,” she said.

Canopy Growth has moved to temporarily close all 23 of its corporate-owned Tokyo Smoke and Tweed stores across the country. Superette is also temporarily closing the doors on its flagship store in Ottawa. Further cannabis retail closures in BC have also been announced. Customers will still be able to order products online but for some struggling companies, already tight on cash flow, the impact of COVID-19 could be the final nail in the coffin.

Fraser said that the lack of financing from the BDC was already a challenge for cannabis companies.

“The capital markets have kind of dried up. There was a point in time in this industry where private investors were throwing their money at cannabis businesses. If you had a pitch deck, you could raise millions of dollars, those days are over,” Fraser said.

“Cannabis retailers across the country are shutting their doors. The federal government needs to act quickly and responsibly to protect this industry, just like they’re protecting all other businesses in this country. These are real jobs. These are people’s real livelihoods. There are significant economic consequences to these businesses failing.”

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