09 Mar Coronavirus Impacting Cannabis Industry

It is about all anyone is talking about, understandably. Mostly the fear of the unknown and the inconsistent messaging from some officials are driving the intense focus on the coronavirus, which has now been labeled a global pandemic. What we know for sure is how it has been impacting the world economy and, in particular, the cannabis industry. This is especially true with respect to the virtual shutdown of business activity in China. What are some of the impacts seen and yet to come in the cannabis space?

1. Hardware. Delivery of products from China is being delayed or canceled, affecting the supply chain for products such as cannabis vaporizers or vapes. In addition, as indicated by MJBizDaily, Chinese factory shutdowns are affecting the shipment and delivery of testing and extraction equipment and packaging for cannabis products. This has not quite hit the market yet as many had over-ordered in anticipation of the Chinese New Year celebrations, which typically shut down businesses for a few weeks.
2. Hemp. China is also considered to be the largest global producer of hemp. While farmers there continue to grow the product, exports have been effectively shut down. This just as the world market for hemp and products to be derived from it, including cannabidiol (CBD), was rising rather dramatically.
3. Stock Market. We continue to watch the U.S. (and world) stock markets in freefall. The index of global cannabis stocks has been in fairly steady decline since around March 2019. There was hope that companies focusing more on profitability and shedding costly operations might begin to reverse this following the major correction in cannabis stock prices last year. Unfortunately these stocks now are caught up in the overall market decline as well. The same trends hold true for the American cannabis operator index.
4. State Legalization. With a number of states hoping to move towards medical or adult use legalization this year, some efforts may be impeded by COVID-19. For example, in states hoping to move to voter referendums, signature drives at places like malls and other gathering spots could be affected. New York’s Governor, Andrew Cuomo, last week indicated that coronavirus may require him to cancel a tour he planned of legal cannabis states such as Massachusetts and Illinois to bolster his effort to legalize here. This while there remain differences between Cuomo and the NY legislature on a few key issues as the clock ticks on the March 31 deadline to complete the process as part of this year’s NYS budget.
5. Social Impact. Writers in the industry have begun to caution cannabis users to cease the common practice of sharing product when smoking or vaping cannabis or CBD. Gatherings in the industry have been postponed or canceled, including here in New York, another rapidly emerging epicenter of coronavirus trouble here in the U.S. This could affect U.S. cannabis sales, along with the general public attitude of limiting all group gatherings.

Some are hoping that the shutdown of Chinese supply will positively affect U.S. producers of products that otherwise would be sourced more inexpensively from the PRC. Others are looking at alternative sourcing in places such as Vietnam, where the outbreak thus far remains limited. U.S. hemp producers, in particular, could benefit from the China shutdown of hemp exporting, especially now that hemp production has moved to legal status in the U.S. Once China is back on line, however, the market expects a glut of supply of hemp coming from there.

Along with the stock market declines in cannabis stocks over the last year came significant challenges in the capital markets as these companies, almost all of which are not profitable, struggled, really for the first time, to raise money. While there are some financings being completed, especially for the more seasoned and public companies, the challenge for these stocks to regain momentum appears that it will likely continue.