The COVID-19 pandemic is worsening in North America, destabilising normal life and affecting most markets. And the negative economic effects of the coronavirus pandemic can also be seen in the cannabis industry.
Multiple large cannabis operators are scaling back and laying off workers in a struggle to reduce their operational costs. And recreational cannabis sales are now falling, despite the initial surge they had when people were preparing for social isolation and stocking up on cannabis products.
After a bad 2019, the cannabis industry faces a worse 2020
Many people expected 2019 to be the best year for the cannabis industry, seeing as 2018 already was an outright fantastic year for cannabis, and the first half of the year seemed to meet these lofty expectations.
Lawmakers from around the world, but especially from North America, had finally managed to create regulated environments for cannabis products. These environments were supposed to usher in a new industry while driving the illicit cannabis market into the ground.
And it all started according to plan. The legal cannabis industry brought a lot of money into the economy. In Canada, the pot industry contributed more than $8.26 billion to the country’s GDP. In addition, more than 9,200 people were working for companies operating in this quickly-expanding industry by April 2019.
In the U.S., things were also looking good at the start of 2019. The industry registered $52 billion in sales and the number of new jobs in this sector increased by 76 percent. In April, it was estimated that about 200,000 to 300,000 people were working for cannabis businesses nationwide.
The legal cannabis industry seemed unstoppable. But then, the newly formed industry encountered some difficulties that stopped its growth.
In Canada, despite the optimism that legalising cannabis brought with it, customers were having a hard time getting their hands on marijuana products. Finding a store was a challenge in itself because of the delayed rollout of sales locations, and, more often than not, stores only had access to a limited supply of products.
And cannabis investors also had a rough year. CannTrust Holdings Inc., one of the largest players in the industry, became the most controversial cannabis brand after Health Canada found that its operations were not complying with health standards. Aphria Inc., another important company in the cannabis business, was accused of paying inflated prices for Latin American assets, and that was only the start of the bad news.
Lots of publicly-listed cannabis companies reported losses during the first year of legalisation. Cannabis stocks reached 52-week lows as most of the businesses in the sector cut back on their quarterly revenue forecasts.
Meanwhile, the vape crisis hit the U.S., affecting more than 2,800 people and bringing down the cannabis vaping industry.
So, 2019 was not a good year for the cannabis industry. Although investors and cannabis enthusiasts hoped it would become the best year in the industry’s existence, 2019 fell short of expectations. And 2020 doesn’t seem to be going much better.
COVID-19 is affecting the cannabis industry in the U.S. and Canada
The COVID-19 pandemic has affected millions of businesses around the world. And cannabis companies are also suffering. Most cannabis corporations didn’t have the financial success they were expecting in 2019, and the current situation only worsened their problems.
The New York-based Acreage Holdings announced that it will furlough 122 employees and close some of its current operations in order to maintain its profitability goals. MedMed Enterprises, a Los Angeles-based cannabis corporation that has been struggling financially since last year, announced that it has contacted a management advisory firm to help it restructure.
Furthermore, 4Front Ventures, a multistate cannabis operator, said it will reduce its corporate workforce by almost 40 percent and its operational workforce by almost 45 percent in an attempt to achieve a positive cash flow in the second half of 2020.
And last, but definitely not least, Harvest Health & Recreation announced that it will not go forward with its acquisition of Verano Holdings. This transaction was supposed to be the biggest one in the cannabis industry this year, with a value of $850 million.
These are only part of the strategic decisions cannabis businesses made as a reaction to the significant impact COVID-19 had on the cannabis landscape. In 2019, most cannabis investors pressured companies to reach profitability quicker, and the current situation makes that task even more difficult than it was last year.
Social distancing and the increasing rate of unemployment due to COVID-19 will make people think twice before spending their money on cannabis products. And even though cannabis businesses have been deemed as essential in many American states during this pandemic, most of them do not benefit from financial protection programs like other businesses.
As a result, many cannabis companies rely on their savings and current sales to stay afloat. And in an industry that is renowned for being strapped for cash, that could spell disaster for a lot of businesses.
Coronavirus lowers March recreational cannabis sales
Recreational cannabis sales in four U.S. markets decreased in March because of the COVID-19 crisis. Despite the fact that cannabis sales saw a surge as people stocked up for social isolation, the sales bump was short-lived.
In California, cannabis sales between the 1st and 15th of March were up by 70 percent compared to the same period from 2019. But between the 15th and 31st of March, the year over year sales were up by only 38 percent.
In Colorado, cannabis sales were up by 10 percent in the first half of March and down by 21 percent in the second half, compared to the same period of last year. And in Nevada, sales were first up by 10 percent during the surge and then down by 15 percent.
The sharp declines after the social isolation orders came into place indicate that cannabis businesses might experience the lowest April sales since the legal cannabis industry came into being.
April is usually one of the best-selling months for cannabis products, mainly thanks to 4/20 (April 20th), which is the biggest cannabis sales day of the year. But this year, due to social isolation, travel bans and economic uncertainties, cannabis businesses might not have registered record sales at all, although the data will have to show that.
Cannabis businesses might get governmental help in light of COVID-19
Eleven U.S. senators signed a letter urging lawmakers to allow cannabis companies to qualify for economic assistance from the Small Business Administration. But until the U.S. leadership decides that cannabis businesses can access loan programs, these companies are on their own.
In an industry that’s usually strapped for cash, the current drop in sales might cause a lot of businesses to go under. That would mean that a lot of people will lose their jobs and that many medical cannabis users will have restricted access to their medicine.
However, help is coming, so cannabis businesses can use this period to reevaluate and restructure themselves to ride out the coronavirus pandemic.