The impact of COVID 19 on the legal cannabis industry

Covid cannabis business

COVID 19 has presented the U.S. and the rest of the world with a monumental challenge that most of us could never have expected.  The impacts of the pandemic are devastating and far-reaching and it would be hard to imagine any person, business, or community that hasn't been deeply impacted by the pandemic and surrounding events.  

It should first be noted that even before the outbreak began, the Cannabis industry was facing very difficult capital markets, with limited liquidity, tumbling stock prices, and highly publicized operational challenges. We have seen the pandemic impact the Cannabis industry in several ways, likely including accelerating the fall-out from some of the industry challenges that we saw before the pandemic. The first notable impact was that as certain states implemented their stay-at-home orders, many state governments deemed cannabis businesses to be 'essential' and allowed them to continue operations even as most other businesses were forced to temporarily close their doors.  As of April, Alaska, California, Colorado, Illinois, Michigan, Nevada, Oregon and Washington deemed both medical and adult-use Cannabis as essential, and 20 additional states deemed medical cannabis as essential.  In a controversial decision, Massachusetts officials deemed medical (but NOT adult use) cannabis as essential.  The significance of the designation as essential is two-fold.  First, it lends great credibility and legitimacy to a nascent industry that has been working towards legitimization against the backdrop of federal prohibition.  Secondly, it gave these businesses, already in the midst of a financial and existential challenges, the chance to preserve their revenue and operations.  

Another major impact that COVID has had on the Cannabis industry is that it has caused or exacerbated massive delays in many licensing and entitlement processes around the country.  In many cases, businesses are required to carry real estate and other overhead as they await the outcome of the licensing process, so the delays can be very costly.  Because many local governments have been working remotely or reduced hours, significant delays have ensued.  In Illinois, the highly competitive second round of adult use dispensary licenses was delayed.  The winners were scheduled to be announced on July 1.  However, Governor Pritzker announced just 2 days prior that the issuance of the licenses would be delayed.  Painful delays have ensued in Missouri and Maine as well.  In some California cities, licensing and permitting have slowed significantly because of the impact on the city workforces. 

Despite the designation as "essential", Cannabis businesses have seen mixed impacts on revenue.  There was some evidence at the start of the shut downs, that consumers and patients were "stocking up" to ensure they had adequate medication (in some cases) or something fun to do at home (in other cases).  The impact on sales also varied greatly from state to state.  After the initial boon, the latter months of the shut downs resulted in a revenue hit for many Cannabis businesses.  Some of the decrease is driven by the abrupt decrease in tourism.  However, as history has shown, Cannabis sales are at least somewhat recession-proof, if not counter cyclical.  

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