The Effects of COVID-19 on the Cannabis Industry

It seems like yesterday that the first U.S. state ordered “nonessential” businesses to close to slow the spread of COVID-19. By today, the majority of states have followed suit. In many cases, marijuana dispensaries, whether adult-use/recreational or medicinal, have been declared essential and can remain open.

The pandemic has made it hard for several businesses to operate. The deadly disease is not just affecting the physical wellbeing of the world, but it has created challenging conditions for the cannabis industry too.  

It’s easy to dismiss the cannabis industry as one that wouldn’t be profoundly affected by COVID-19, but that would be a mistake. Here are a few of the ways this pandemic is changing the cannabis industry.

Disruption in the Supply Chain

A significant issue to arise is supply chain disorder. Canada and the United States are primary drivers of a supply chain that originates from China. Not because China is growing our continent’s marijuana but because they’re a low-cost manufacturer for products and accessories on which the industry thrives.  

For example, cannabis users smoke, eat, vape, or apply cannabis products in the form of tinctures, ingestible and topical oils, infused food/drinks, and more. Many of these are dependent on smoking and vaping accessories, product packaging, and other materials that come from China, a country not yet back to full production after this round of the pandemic.

Other supply chain disruptions can include the air conditioners, ventilation and heating products, as well as LED bulbs used in growing operations. 

Cultivators are often dependent on LED bulbs for the cultivation of their crops. LED bulbs, in particular, are considerably cheaper and create less heat, which can decrease climate control costs. The production of LED bulbs occurs in China, which means cultivators should be checking their supply.

Impact on Stock Prices

Cannabis is the most volatile industry with high levels of active trading and can face significant downtime due to the COVID-19 pandemic. Still, the cannabis industry has a history of recovery in response to market downturns.

Cannabis industry stocks have been more reactive to the COVID-19 pandemic than the standard stocks. From January 2020, marijuana stocks have taken more significant losses than most, but they are also expected to react quicker to market upticks.

Longer-Term Impact

The pandemic threatens their very survival for some operators, but it also has the potential to create incredible opportunities for those who have the financial power to overcome the short-term challenges.

Craig Behnke, equity analyst at Marijuana Business Daily’s Investor Intelligence said, “Coronavirus conditions are prodding cannabis companies to take even more aggressive steps to reduce expenses, lower headcount and sell noncore assets in a bid to accelerate their path to profit.”

As the coronavirus pandemic worsens and further destabilizes the marijuana, many operators have decided to uncover and eliminate inefficiencies or restructure while putting any plans for expansion on hold.

Some operators, on the other hand, might see sales spikes as existing and prospective clients begin to deal with the anxiety and free-time created from staying home for extended periods, whether its to ease stress or help with the increasing sleep issues reported during the pandemic. 

In recent weeks American citizens have rushed to stock up on needed supplies like hand sanitizer, toilet paper, and canned goods. In those states where marijuana has been legalized, such as California, Oregon and Michigan, where marijuana has been legalized, residents raced to stock up on their favorite cannabis products to last through potential months sheltering in place at home.

For example, when the SF Bay area residents were issued a stay-at-home order, marijuana sales skyrocketed to more than 150 percent over the same period a year earlier, according to a director of analytics at a cannabis market research company. The director implied the purchases of edibles surged to levels rarely seen outside 4/20 annual marijuana appreciation holiday.

A boost in sales would be significant for the whole industry, but some cannabis operators will run out of money if they’re not able to reduce the costs quickly.

Bottom Line

COVID-19 has already had a significant impact on the entire industry in the short-term, and this pandemic can dramatically alter the landscape of the cannabis sector in the longer-term. 

We work with cannabis companies. If your cannabis company has questions about the challenges you and every other cannabis operation faces through and in the aftermath of this pandemic, call us or send us a message. There’s no obligation, we at c2b appreciate being able to serve you through these times. 

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