Lessons From The Financial Troubles Of Cannabis Company Plus Products
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Several factors eroded the company’s position in the Californian market
On Sept. 13, California-based Plus Products (CSE: PLUS; OTCQX: PLPRF) filed for protection from creditors under the Companies’ Creditors Arrangement Act (CCAA), the Canadian counterpart to U.S. bankruptcy statutes.
The filing caps a long-running battle to maintain liquidity despite the increasing difficulty in accessing capital markets.
Plus Products enjoyed several advantages early on:
- An initial entrant into the California edibles market, it had three of the top 10-selling SKUs of any branded product category in first quarter 2019.
- Management, led by co-founder and CEO Jake Heimark, was well respected, and the company had a tightly controlled strategy of proving itself in California before venturing into other geographies.
- Its “asset light” strategy appeared to be the prudent way to approach a rapidly evolving market.
What went wrong?
- Competition eroded the company’s position in the California market. Wyld and Kiva Brands displaced Plus as the top two edibles brands in California, according to Seattle-based data analytics firm Headset.
- Increasing competition revealed the weakness of the business model of a small, independent brand selling through independent distributors. This structure makes it difficult for the independents to push products onto retail shelves.
- The COVID-19 pandemic changed cannabis usage patterns. Edibles offer a more discrete method of consumption. But when the pandemic kept more people at home, consumption trends shifted to flower, which benefits from the immediacy of effect and lower cost.
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