Can cannabis companies rebound after COVID-19?
As retailers in Australia, struggle to keep up with the demands of panic buying due to the Coronavirus (COVID-19), around the world non-essential retailers are now being forced to close down. This includes legal cannabis dispensaries in countries like the US, Canada, and the Netherlands.
Cannabis users are queuing up in North America and the Netherlands to stockpile legal cannabis products before cannabis retailers are forced to close.
With the pandemic in full swing cannabis dispensaries in the US have seen a spike in sales as fears of closures loom.
New England Treatment Access in Brookline, Massachusetts has ceased taking walk-in orders and will only serve customers who place orders in advance.
Cannabis delivery services have also seen a significant spike in sales in California, whether product delivery is shut down remains to be seen at this stage, however any closure could have a negative impact on medical cannabis patients.
It coffee would be a shame to have come so far in the provision of medical cannabis products to those in need, only to have it wound back.
Yet, that is the world we currently live in.
In the Netherlands, the famed ‘coffee shops’ have already been forced to close along with many other non-essential retail outlets, bars, and restaurants.
Queues of cannabis users were seen gathering outside many Dutch coffee shops immediately following the announcement, as customers looked to stock up on their favourite strains.
Cannabis dispensaries in the Netherlands could be closed for weeks due to Coronavirus prevention measures.
Sale surge in Canada
In Canada, the epicentre of the cannabis industry, cannabis stores in Ontario and Alberta have reported “unprecedented demand” during the outbreak.
Cannabis companies recently told Marijuana Business Daily “there is no threat to supply chains at this time, and safety measures have been put into place for employees and consumers”.
Spiritleaf’s 46 stores saw sales up 20% during the previous month and a record number of customers served.
“The supply chain remains in place, stores are stocked and we have seen an uptick in edible purchases.”
The company is encouraging its customers to order online or ‘click and collect’ to avoid unnecessary contact.
The Ontario Cannabis Store has seen its sales surge 80% week-over-week. The government-owned store dropped prices recently to improve competitiveness, but COVID-19 has also had an effect.
Physical stores in Ontario are also seeing an increase in orders.
“Not unlike major grocery retailers, Sessions Cannabis has seen a significant increase in sales this week due to growing concerns regarding COVID-19 social distancing protocols,” Sessions CEO Steven CEO wrote in an email.
Canadian cannabis stocks were starting to see a rebound from 2019 lows, led by Canopy Growth (TSE: WEED).
Canopy is the largest cannabis company on the planet with a market cap of C$6.8 billion and reported net revenue of CA$123.8 million in fiscal Q3 2019, an almost 50% increase from the CA$83.0 million reported last year.
The result saw its share price rise, which was expected to mark the turning point for the industry at large.
However, marijuana stocks haven’t escaped the massive global sell-off of stocks and it is expected that “heavily indebted, cash-poor, and richly valued cannabis companies won’t fare well if the coronavirus pandemic slips the global economy into a recession”.
Tilray sold $90 million worth of shares on Friday 13 March, causing the stock price to dive 32%, for a total 83% loss in net worth over the last month. The company is now worth just $317 million, down from a $7.5 billion valuation just a year ago.
Harvest Health and Recreation in Tempe took a 71% dive this month.
One thing we don’t often consider is the knock-on effect.
The cannabis industry, utilises many products made in China. Marijuana Business Daily reports “industry analysts estimate that 90 to 95% of all components that make up a marijuana vaporizer are manufactured in factories in Shenzhen, China, where shipment delays of two to four weeks have become the norm due to factory shutdowns”.
The marijuana stocks ETF, MJ dropped 50% off its early 2020 highs, yet it is expected that when the pandemic clears, cannabis stocks will resume its interrupted recovery.
At this point there could be bargains at hand.
As far as Australians are concerned, investors could look into MMJ Group (ASX:MMJ), which actually gives investors access to hard to reach US cannabis stocks and Creso Pharma Limited (ASX:CPH), which coincidentally, just hired two former Canopy executives to help run its Mernova subsidiary.
Both companies are unsurprisingly down, however have set the foundations for a strong rebound.