Cannabis Stocks And COVID-19: The Industry Isn't Going Anywhere

By Hasan Saleem.

No one was prepared for the coronavirus. Entire industries have been devastated, supply chains disrupted, and millions of people have been out of work for weeks due to stay at home orders. But COVID-19 hasn’t impacted all markets in the same way, and the cannabis industry has actually fared better than most.

Many of the largest canna-businesses in the U.S. and Canada have seen significant gains in the stock market. Canada based Aurora Cannabis saw their stock prices soar a whopping 64.9 percent at the close of business Friday (5/15/2020), following the announcement that their sales were up 35 percent from last quarter.

Competitors have seen more modest gains: Green Thumb Industries is up more than 15 percent; Canopy Growth is up 14.5 percent; Cronos Group is up nearly 12 percent; and Tilray is up more than 8 percent.

“Essential” or Not?

Much of the good fortune enjoyed by these and other marijuana growers and retailers can be attributed to their designation as “essential” businesses. In nearly every state and province where it’s legal, the cannabis retailers have been allowed to continue operations – with the notable exception of Massachusetts, which closed down recreational pot sales across the state. In announcing the decision, Gov. Charlie Baker cited fears that recreational marijuana might attract buyers from out-of-state, potentially exacerbating the spread of the virus.

If anything, the widespread issuing of stay at home orders has been a boon for cannabis sales. Facing the daunting proposition of being stuck at home for weeks, or even months, people thronged to head shops to stock up on their favorite strains. In Colorado, recreational marijuana sales were up 40 percent for the month of March. In California, sales doubled. That increase in sales trickled off in April, as people realized that they didn’t need to stock up, because they weren’t going to lose access. But it was still a record quarter for many cannabis retailers.

See also: Medical Cannabis Clinical Evidence Is Becoming Immune To State Borders

The surge of sales due to COVID-19 “panic buying” has played a large part in the stock market gains mentioned above. Whether those gains are sustainable or not is another question. As sales continue to level off, and the long-term economic impact of the coronavirus starts to settle in, we’ll see just how much people still consider cannabis an “essential” expenditure.

No Help From The Feds

One way that cannabis businesses are at a disadvantage during this crisis (at least in the U.S.), is that despite being legal at the state level, the federal government still classifies marijuana as an illegal Schedule 1 drug.

So companies in the cannabis industry cannot apply for financial relief from the Paycheck Protection Program or other bailouts. This forces struggling retailers, like those shut down in Massachusetts, to figure out a way through this recession on their own. There have been lots of lay-offs, and some businesses my never bounce back.

In some ways the pandemic is merely highlighting an issue that the cannabis industry has struggled with all along: a shortage of cash. Marijuana’s dubious legal status in the United States has long led bankers and investors to shy away from the industry, making it much harder for canna-businesses to get the loans and investment capital they need to grow.

The companies best poised to survive the economic downturn are those with plenty of cash on hand, like the before mentioned Canopy Growth Corp. and Cronos Group (both based in Canada, where cannabis capital is much easier to come by). Both companies have received huge investments which leave them well prepared to weather the storm. Many smaller, cash poor companies may have hard times ahead.

Adapt to Survive

The coronavirus has forced every business to roll with the punches, and the cannabis industry is no exception. Like restaurants and other retailers, many pot shops have had to close the inside of their stores and get creative with online and/or call ahead ordering and curbside pickup.

Even as stay at home orders are lifted, and businesses begin to slowly reopen, retailers still have to adapt to the cleanliness standards and social distancing guidelines that have become our new reality for the time being. Those companies that are able to do this skillfully, to maintain safety while still being friendly and inviting to customers, will be the most successful in the days to come.

See also: The Coronavirus Pandemic And 'Essential' Medical Marijuana As Medicine

One thing is for sure: individual companies may come and go, but the cannabis industry as a whole isn’t going anywhere but up. Because the demand is there, and always has been. Marijuana has been used for thousands of years for recreation, relaxation, social bonding, and as a medicine for mind, body and soul. Coronavirus has changed a lot, but it can't change that.

Lead image by Ilona Szentivanyi. Copyright: Benzinga.

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

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