As commerce grinds to a halt across many sectors amid the coronavirus pandemic, it’s clear we are headed into the first recession of America’s legal marijuana era. In short order, we’re going to find out how regulated cannabis markets and businesses truly fare in times of economic slump.
Much remains unknown at this stage, and it is unclear whether cannabis is fully recession-proof. But having built and managed high-growth businesses in other tightly regulated industries and sustained them through previous economic downturns, I can tell you cannabis has plenty going for it that other sectors do not—and that bodes well for the industry’s trajectory during a downturn.
This won’t come as a surprise, but it’s worth repeating: People like cannabis—a lot. Legal cannabis sales have skyrocketed over the past five years and are projected to increase to $75 billion over the next decade. That’s a lot of weed.
There’s no reason to think an economic downturn—even an unprecedented, pandemic-induced recession like this—will negate the ever-increasing demand for cannabis.
Consumers across America were quick to stock up on cannabis products as states and cities began moving to shut down nonessential services, with dispensaries in states like California reporting record sales in March and April. It turned out stockpiling was unnecessary, as state after state deemed cannabis sales in legal dispensaries an essential service for consumers. In fact, more than a dozen states mandated that, similar to pharmacies, dispensaries should remain open amid the broader closure of retail establishments.
To be sure, the industry will be impacted by the coronavirus pandemic, but demand should remain steady. We may even see a continuing surge. A recent Pew study found almost 50 percent of consumers use cannabis to relieve anxiety. Cannabis can’t change the spread of the virus, but it can provide palliative relief in a stressful world.
Even if recreational sales were to slow or stop during this pandemic, medical sales likely would remain strong. People need medicine regardless of economic cycles. That’s been clearly demonstrated in states like Massachusetts, where recreational sales have been halted for the time being, but medical marijuana sales remain in place.
This won’t come as a surprise, but it’s worth repeating: People like cannabis—a lot.
It is possible medical sales may even rise in the near term, as consumers who have been procuring cannabis through the recreational system shift over to the medical system. Portland, Oregon, for example, is allowing medical cannabis businesses to continue operations regardless of payment issues or license expirations.
Cannabis is still an exciting new industry, filled with untapped opportunity and boundless potential. An economic recession won’t change that growth trajectory. Think about it: The United States hasn’t even passed federal legalization yet.
This industry is just getting started.
That said, what we are likely to see during this pandemic is the expedited demise of insolvent and poorly run cannabis companies, as supply-chain issues and other extenuating circumstances disrupt business as usual—and with no federal assistance available for the cannabis industry, the problem will be compounded.
But well-run companies that are protecting employees and customers from illness, along with having rock-solid standard operating procedures and plans for supply-chain management challenges, should fare well enough even in a recession—provided they have ample cash to cover payroll and expenses.
It is critical state governments and municipalities recognize a prime source of tax revenue must be supported from within if the multibillion-dollar federal bailout measure can’t be accessed by cannabis businesses. At first blush, it appears very little, if any, of the funds from the federal stimulus package will be used to help the cannabis industry. This must change. More than 200,000 people work in the industry, and federal and state governments must protect that workforce—to say nothing of the tax stream—from disruption.
In this environment, companies that can continue to deliver what they promise, and do it on time, are primed for success. If we do see some companies start to fold, particularly those in the cultivation category, wholesale flower prices may rise. In a scenario where demand begins to outstrip supply, well-prepared cultivators, in particular, could see a meaningful increase in profits as the pandemic plays out.
Above all, the companies that do the best during the months ahead will be the ones that continue operating with integrity amid the chaos and uncertainty. Companies that do right by their employees, customers, and partners—the ones with a strong culture and strong values—those are the ones that will thrive.
