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Here's How Coronavirus Can Impact Cannabis Industry

Zacks Equity Research

­­­­­­­­­­­­­The coronavirus pandemic has engulfed the entire world, putting countries under lockdown and claiming more than 10,000 lives globally. The virus has spread far and wide and has crippled the global economy. The cannabis industry has not been spared either. Cannabis has both medical and recreational usage. The Horizons Marijuana Life Sciences Index ETF has dropped nearly 45% in the past 30 days.

As more and more countries enforce social distancing and ask people to stay indoors, all that remains open are grocery and pharmaceutical stores. However, several cannabis dispensaries serve medical patients who depend on marijuana to ease chronic pain, nausea and seizures. In fact, these patients have opted for pot-based treatment as they feel traditional medicines are either ineffective or risky.

Though medicinal usage of cannabis puts it into the essentials’ list, the industry’s outlook seems dull. Supply chain disruption is a major dampener among several factors that cloud the upward trend in marijuana business.

 

The cannabis industry is not just about growing and processing hemp. A number of other components used to intake marijuana is produced in China. The country is a low-cost producer of vaporizer and as production has been halted due to the coronavirus outbreak, it will lead to shortage in supply of final goods.

KushCo Holdings, Inc. KSHB that sells vaporizers, provides packaging and branding solutions, and supplies hydrocarbon gases used in the production of cannabis oils is facing shortage as some of its raw materials are derived from China.

Along with supply chain disruption, lockdowns and travel restrictions have completely halted the tourism industry. This is leading to weaker sales and store shutdown. In fact, governments enforcing social distancing have called for cancellation of trade shows, which were set to take place in several parts of the United States, Canada and Europe in the next few months.

In fact, many cannabis firms rely on trade shows to market cannabis derivatives like edibles, vapes, infused beverages, topicals, and concentrates. For instance, Aurora Cannabis Inc. ACB, which was looking for brand-name partnership to push the launch of edibles and vapes, could witness a slowdown, resulting in quarterly operating losses.

Additionally, due to a drop in tourism, cannabis dispensary complexes in Las Vegas have been hit hard. Planet 13 Holdings’ 112,000-square-foot superstore in the Las Vegas Strip has several bistro, events center, and consumer-facing processing centers. It also features a broad selection of marijuana products. The deep decline in tourist footfall surely will hurt the superstore’s sales.

Further, the Centers for Disease Control and Prevention (CDC) has warned that smoking marijuana should be avoided during the pandemic. One of the major reasons being users share marijuana joints and that is an easy way for the virus to spread.

However, CDC has also instructed people depending on marijuana for medical use to have at least one month’s supply in hand. This is because there are high chances of a supply shortage or unavailability if there are stay-at-home orders for 14 or 28 days.

Though people may be able to receive cannabis products via delivery in certain areas, in spite of quarantine, it is quite reasonable to assume that cannabis demand would drop if coronavirus cases continue to rise. This may hamper growth of several marijuana players like Aurora Cannabis, Cronos Group Inc. CRON, Canopy Growth Corporation CGC and many more.

Currently, Canopy Growth carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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KUSHCO HOLDINGS, INC. (KSHB) : Free Stock Analysis Report
 
Canopy Growth Corporation (CGC) : Free Stock Analysis Report
 
Cronos Group Inc. (CRON) : Free Stock Analysis Report
 
Aurora Cannabis Inc. (ACB) : Free Stock Analysis Report
 
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