Ask Our Experts: Investment Amid the Pandemic

 

Q: What impact do stakeholders expect COVID-19 to have on the legal cannabis industry?

A: In preparation for its daylong, industry-first Global Cannabis Town Hall: New Economic Realities webinar, New Frontier Data surveyed leading stakeholders in the legal cannabis industry about their views for the impact of COVID-19 on the overall industry and their specific business interests.

Their responses revealed widespread concerns, yet high confidence among stakeholders regarding the industry’s ability to weather global disruptions from the pandemic.

Key findings included:

• Nearly three-quarters (74%) of stakeholders were acutely concerned that the pandemic would trigger a recession – a fear borne out by several economic indicators, including surging unemployment rates driven by shelter-in-place orders in most U.S. states and countries worldwide. During three weeks ending April 9, more than 16 million Americans filed for unemployment benefits – the largest such number in history.
• Meanwhile, 65% were likewise concerned about maintaining sufficient operating capital during a period of unprecedented economic disruption. With many cannabis businesses still in early stages of growth, critical disruptions to cash flow (either due to declining sales or cuts in venture funding) can impact businesses’ ability to establish a toehold in the market.
• In the U.S., most among states with legalized markets declared cannabis businesses as essential, thereby lowering the risk of sales disruptions relative to other consumer sectors of the consumer economy. However, should high rates of unemployment be sustained over an extended period, decreased consumer spending may be reflected in demand for legal cannabis products, especially at the premium end of the market.
• Nearly six in 10 (59%) of business operators were similarly concerned about the health of their employees. With the largest retailers serving hundreds if not thousands of customers daily, ensuring staff safety amidst a highly virulent contagion is a constant concern. Many states moved quickly to protect the health both of customers and staff by allowing changes which the industry had called for as some lawmakers resisted, including offering curbside pick-up, drive-through windows, and delivery services.
  With many cannabis production facilities operating at or near medical-grade standards, ensuring a highly sanitized work environment was already common practice for many businesses, simplifying the integration of new sanitization protocols in response to COVID-19.

Despite anticipated disruptions, four among five (80% of) stakeholders remain bullish about the industry: 59% reported intending to increase their 2020 investments in the industry, while 21% planned to maintain the same level of investment as in 2019. That confidence in the outlook for legal cannabis despite some of the historically steepest losses in the U.S. stock market bodes well for the cannabis industry, as many investors will be keen to seek safe haven or high-growth sectors. With cannabis businesses being among the few retail sectors deemed essential by state governments, the ability to continue operating as most of the economy is on lockdown helps cannabis businesses to remain among few brick-and-mortar establishments not to face catastrophic losses from extended closure.

Such findings suggest that many cannabis industry stakeholders are clear-eyed about the coming economic shocks triggered by COVID-19. However, with regulatory changes enabling the industry’s continued operations, and with strong (and deeply entrenched) consumer demand, the industry looks to be very well positioned to weather the foreseeable future: Indeed, nearly six in 10 (59%) of the stakeholders surveyed expect COVID-19 to impact the cannabis industry less acutely than other sectors of the economy overall.