How COVID-19 Will Impact Cannabis Businesses
In the midst of life in the time of COVID-19, grocery stores are working 24/7 to thwart toilet paper pandemonium and keep staples like bread, bacon, and canned beans in stock. Meanwhile, doomsday preppers are sharing tips on Youtube, and guns and ammo are selling well – and so is cannabis.
As we holster up with hand sanitizer and Charmin, drug researchers, health officials, medical personnel, and the Army Corp of Engineers are waging an all-out war against COVID-19. As we continue to learn how COVID-19 will impact businesses, cannabis sales in the U.S. and Canada hit an all-time high in March, giving hope to the industry.
In key U.S. markets, recreational cannabis sales have spiked 50% higher compared to the same time period last year. Similarly, medical sales are up 40%.
In Ontario, Canada, orders from the government-run online cannabis store doubled over a two-week period. The increased demand is likely due to concern over the possibility of cannabis shortages and an increased need to blunt stress during uncertain times.
Cannabis is proving to be recession-proof. As such, Colorado is catching up to California in a timely move by approving its first delivery license for recreational cannabis.
So, what else is going on in the cannabis industry in a time of business as unusual?
Businesses Up, Down & Sideways
There’s been a long scientific debate as to whether viruses like COVID-19 are dead or alive. Pundits, politicians, businesses, and workers are now wondering the same thing about the economy as “non-essential” businesses close and people shelter in place.
As of March 26th, the largest number of U.S. workers ever have filed for unemployment, making businesses and civilians everywhere question the stability of our economy. The cannabis industry is currently having to make some adjustments and concessions to cope.
For instance, Illinois has always had a shortage of cannabis products, even in its medical market. Now, demand is threatening supply, rather than supporting it. Recreational sales in the state just began in January and now several adult-use dispensaries have voluntarily shut down to ensure medical patients will have ample supply.
Now, dispensaries in Illinois now allow pick-up for medical cannabis patients and Opioid Alternative Pilot Program (OAPP) participants in designated curbside areas to help protect those vulnerable populations from COVID-19. Also, Maryland and Michigan have initiated drive-up cannabis sales to facilitate social distancing.
On the West Coast, Oregon and Washington have been facing an issue that’s opposite the one in Illinois. A cannabis oversupply has been driving prices and profits down for a few years. The current run on cannabis could help bring their markets back into equilibrium.
People, Plants & PPE
Cannabis plants grown indoors are high maintenance cultivars. Each plant needs to be looked at every day by a human. Water and nutrient levels must be properly maintained and any sign of disease, pests, or powdery mildew must be mitigated in short order. None of these maintenance requirements jive with shelter-in-place orders.
To make matters worse, the personal protective equipment (PPE) typically worn in a grow operation is the same kind that’s currently in short supply for medical staff. Isopropyl alcohol, used daily to sterilize lab equipment and surfaces, is also scarce.
Commercial cannabis is grown in a way that resembles a pharmaceutical operation where plants live under their own sort of quarantine, locked down in a “clean room.” Without enough qualified individuals able to work with the right kind of gear during the COVID-19 outbreak, plants – and a continuous supply of cannabis – are at risk.
How COVID-19 Will Impact Cannabis Businesses
Curaleaf, a large publicly traded cannabis producer reported stock gains of 44% during the last full week of March. “Curaleaf highlighted a roughly 20% boost in sales,” data that financial analyst Robert Fagen says suggests a 30% boost in growth as a result of the COVID-19 crisis.
Overall, cannabis stocks have seen a small uptick recently, but have a long way to go to provide the returns to investors that they’ve hoped for. Industry shares got crushed over the last year as some big multi-state operators are discovering that the cannabis business is more difficult than they anticipated.
How COVID-19 will impact businesses in the cannabis industry still hangs in the balance even as people are seeking more and more of it.
Unfortunately, the fact that cannabis remains illegal federally prohibits states with a greater supply from sharing it with other cannabis-legal states, meaning each state is on its own in the cannabis industry’s fight against COVID-19.
COVID-19’s Small Business Reality Check
The reality is fragile in the U.S. where more than half the population is living paycheck-to-paycheck. Small businesses comprise more than 99% of all U.S. businesses and many of them have no cash cushion. Small cannabis businesses are not immune to such challenges; they face high operational costs and big competition from large chains.
Smaller cannabis competitors, like craft cultivators, could profit from the run on cannabis. Hopefully, any new-found customers will remember them when the pandemic-driven spike in sales recedes.
In the meantime, small business owners everywhere – including the cannabis industry – are keen to hear what the government is going to do to support them in this time of uncertainty. Congress is poised to offer massive bailouts to big businesses like the airline industry along with a relief package for many small businesses.
However, the cannabis industry won’t feel the benefit of that package as federal funds can’t go to an industry that’s still federally illegal. The (small bit of) good news is that unemployed cannabis workers will be eligible for aid.
Businesses are taking extra measures to protect their vulnerable medical customers from unnecessary COVID-19 risk. People are also prone to the risk of believing misinformation amid a crisis – like a widely-circulated false claim that cannabis kills the novel coronavirus.
Things are changing hourly with the global health crisis and the economy. While we’ll all be hunkering down as we try to stay well, Higher Yields Cannabis Consulting is continuing to work remotely using virtual tools to support our clients and cannabis business owners.
If you have questions about the smartest move to make for your business in these fluctuating times, schedule a free consultation today.