Ask Our Experts: Federal Coronavirus Relief Benefits Set to Expire
Q: How might the expiration of governmental benefits, including the $600 per week jobless benefit, impact the performance of the legal cannabis industry?
By Josh Adams, Ph.D., Senior Industry Analyst, New Frontier Data
A: The COVID-19 pandemic shows no signs of receding, and there is continuing economic fallout stemming from both the initial public health response and continued preventative measures. The United States economy contracted by 32.9% in the second quarter, and as of July unemployment stood at 10.2%.
To compound those macro-level stressors, the weekly $600 jobless benefit included in the CARES Act expired on July 31. That enhanced unemployment benefit was designed to provide a lifeline for workers displaced by the pandemic, and a necessary supplement to other unemployment benefits. Additionally, a federally mandated moratorium on evictions expired on July 25. Without further Congressional action, the loss of those benefits and protections will leave those in the most precarious economic circumstances even more vulnerable.
While the impact of the ongoing pandemic-induced recession and broad decline in the average consumer’s spending power are felt across the economy, the legal cannabis industry has been relatively strong through Q2-2020. In a recent analysis of retail data from 24 legal cannabis markets in the U.S., New Frontier Data found that average consumer monthly spending rose to record highs in April and May, at $290 and $296, respectively. However, as June saw sales across those markets down slightly (-4.7% from May) to $282, they remain significantly higher (+32.4%) than the average of $213 spent during Q1 2020.
While the data shows that the legal cannabis industry has performed well throughout the first half of 2020, continued economic turmoil may indeed create headwinds for the industry. Findings from New Frontier Data’s 2018-2019 Cannabis Consumer Report indicated that 60% of all consumers spend less than $50 per cannabis purchase. For cannabis consumers who earn under $29,999 annually, 75% spend $50 or less on each purchase, while 65% of those earning $30,000-$59,999 spend less than $50 each time. For those consumers, the impact of continued economic uncertainty is acutely felt.
Despite the ongoing economic tumult, it is expected that overall demand for cannabis will remain strong; how consumers will continue to interact with the market, however, remains to be seen. Consumers, particularly those with more constrained finances, are likely to become more conscientious about the price of cannabis products. A heightened awareness of price could impact consumer behavior in various ways. When making purchasing decisions, some cannabis consumers may begin to shift away from premium brands to more reasonably priced alternatives. Additionally, consumers may begin rationing their use of cannabis products to reduce overall spending. Finally, if legal, regulated cannabis products are found to be prohibitively expensive, some consumers may shift their purchasing back to the unregulated market.