COVID-19’s Prolonged Impact on the Cannabis Industry

  • Last modified: December 15, 2020

To say 2020 has thrown us a curve ball would be the understatement of the century. From growers, to producers and wholesalers, to retail sellers — the entire cannabis industry end-to-end has been impacted in some way by the COVID-19 pandemic. As we continue to pick up the pieces of the initial shock from back in March and look ahead to the rest of 2020 and into 2021, I’m amazed at how the cannabis industry quickly adapted and am optimistic for its future.

Why COVID-19 didn’t kill cannabis sales

When 2020 began, there was a misconception that the cannabis industry wasn’t doing well because the share prices of many of the public companies in the industry were ticking downward. In fact, the industry itself was strong and growing. We were seeing new businesses open their doors at a steady, reliable rate, and the discussion around legalization was growing. Then March 2020 happened.

At the very beginning of the pandemic frenzy in March and April, business owners were simply afraid to make decisions. Even though there was only a very brief disruption of business in most cases in our industry, cannabis operators weren’t sure how the companies around them would be forced to adapt, how consumer behavior would change, and how their supply chain would be impacted. As it turns out, the industry saw record sales in the early days of the pandemic as consumers stocked up, fearing that dispensaries would face a long term shut down.

On March 16, 2020, recreational marijuana sales in three key states skyrocketed. Sales in California were up 159% compared to the same date in 2019, while sales were up 100% in Washington state and 46% in Colorado. Many states across the U.S. designated cannabis sales as an “essential business,” on par with pharmacies and grocery stores. Operators were forced to adopt new regulations and standards to comply with the new health and safety laws in their state. It did cause some delays for the first few months, but inevitably, cannabis business owners adapted quickly in order to satisfy the needs of their customers.

Many expected these elevated sales trends to slow down after stimulus checks and unemployment benefits began to run out for Americans. But that didn’t end up happening. We believe that new consumers who began turning to cannabis rather than pharmaceuticals as a more natural method of treating various ailments or anxiety had a great experience, and opted to continue on that path rather than reverting back to previous synthetic methods of treatment.

The pandemic’s impact on cannabis sectors varied

While all operators have had to adapt to a certain level of change this year, retail businesses in states with large spikes in infection rates have been the most impacted from an operational perspective. For some states that deemed adult-use cannabis as non-essential, such as Massachusetts, the financial impact was far greater. Over the course of the two-month shutdown, it’s estimated that the state’s sales revenue shortfall was $116 million, with a tax revenue shortfall of $19.3 million. Over the course of the 61 day closure, adult-use cannabis dispensaries in Massachusetts lost $1.9M in sales each day that they were closed. States that designated cannabis as essential fared financially far better than states that didn’t.

Wholesale operations, especially large outdoor grows in states with lower infection numbers, have been impacted the least. Guidelines for social distancing in warehouses have changed the way people work, but higher than normal demand is forcing wholesalers to adapt quickly to the new normal.

When the pandemic first hit in March, we were at a phase in the industry where the “first movers” — many of whom were not the most sophisticated operators — were being compared to some of the “fast followers,” who were more experienced and fundamentally sound. The legacy companies are beginning to fall by the wayside as stronger, smarter businesspeople are proving to be formidable competitors. I think we’re still in that phase today, though I suspect COVID-19 has accelerated that normal timeline.

Looking ahead to 2021 and beyond

While it’s nice to think that COVID-19 will become a distant memory in January next year, that wish is looking less likely. The cannabis industry is still strong and growing, but I suspect that it will continue to grow at a slower rate until the pandemic is fully behind us. This is because the cannabis industry is highly regulated and relies on several other industries — including state and federal government — which have all been impacted in their own ways by the pandemic. The cannabis industry can only grow as fast as these ancillary industries can adapt to the new normal. That’s not to say that retail sales won’t grow next year. I’d estimate that 2020 retail sales will still end up being anywhere from 30-40% higher than sales in 2019. So there’s no reason that 2021 can’t beat that.

The 2020 U.S. presidential election could lead to a lot of changes for the cannabis industry. I think that regardless of who wins the election in November, states will continue to push for higher degrees of legalization across the board. The industry as a whole has advanced rapidly, and the majority of the voting public already views state-wide legalization as a success. However, I don’t anticipate full federal legalization quite yet. But I would expect nearly half of all U.S. states to have fully legalized cannabis recreationally before the 2024 presidential election.

For those entrepreneurs interested in starting a new cannabis business, finding financing will be a challenge. Thanks to the impact that COVID-19 has had on adjacent industries, investors are becoming increasingly more cautious about where they invest their money. As an entrepreneur who has participated in a few different regulated industries, there are many unique challenges and constraints that new entrepreneurs who aren’t backed by solid capital partners will find very difficult. That said, it’s a hot industry with opportunity for disruption and improvement. If you’re a savvy, experienced entrepreneur who is passionate enough about cannabis to adapt to the unique challenges a regulated industry provides, there are definitely problems you can solve in cannabis. Adaptation is the name of the game in 2020.

Regardless of what happens today, tomorrow, or in November, I’m constantly inspired by our customers and how resilient they have been during this crazy time. No matter what 2020 throws at them, they adapt and keep moving forward. Our team at GrowFlow definitely feeds off the inspiration they all provide us with, and it’s a big reason why we’ve come so far so quickly.

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