Long-Term Coronavirus Impacts on Cannabis

by | Mar 31, 2020

Written by Sarah Ratliff

Up and down the supply chain, cannabis companies are forced to adjust, as customer demand fluctuates, and public health restrictions change the way growers, processors, manufacturers, and retailers do business. The earliest signs of trouble in the cannabis supply chain have been encountered in the vaporizer market. Most vaporizers and associated hardware (up to 95 percent, according to some industry analysts) are manufactured in Shenzhen, China, where the struggle to contain COVID-19 led to massive shutdowns of that city’s manufacturing facilities. While some factories are reopening, it will take many weeks before production levels return to previous levels.

But while China has begun to get a handle on the coronavirus, the problems have only just started in the United States. The coronavirus appears poised to sweep across the U.S., leaving a trail of illness and death in its wake. COVID-19 could create chaos in the healthcare system while pushing the teetering economy to the edge of disaster.

Demand Remains Strong for Cannabis Products—But for How Long?

The good news for the cannabis industry is that medicinal cannabis will be needed as much as ever in the coming months. Poor health puts people at higher risk for COVID-19, meaning that those who depend on medical-grade cannabis to treat various conditions would be in danger if the supply of these health-restoring medicines were cut off.

In this time of lockdowns and shelter-in-place edicts, home delivery will be essential to keep medical dispensaries (and their suppliers) viable. Recognizing this fact, several states have already amended existing regulations to allow curbside delivery of medicinal cannabis products to those who are in need.

Meanwhile, demand for recreational products will also likely remain strong—for a while. In the early weeks of the pandemic, stores are reporting spikes in sales, as people stock up in anticipation of future quarantines or possible supply shortages.

However, if the coronavirus continues as a public health threat for an extended period, rising unemployment levels and economic malaise, in general, could be disastrous for recreational cannabis producers. In such circumstances, survival needs will have to come first. Suppliers on the recreational side may get through the initial stages of the pandemic reasonably well. Still, they could be looking at a catastrophic collapse on the demand side if the coronavirus rampage continues throughout the summer.

The Impact of the Coronavirus on Cannabis Workers and their Employers

Regardless of what happens to customer demand, cannabis suppliers will be highly vulnerable in the coming months for other reasons. The growth, processing, manufacturing, and distribution of cannabis products is both labor- and technology-intensive, meaning workers are required to run these operations.

In the United States, there are approximately 211,000 people employed in the cannabis industry. While some worker shortages are inevitable, in the time of a pandemic, the cannabis industry has been deemed essential, therefore stay at home orders don’t apply to cannabis workers. Despite being essential, with the downturn of the economy and so many losing expendable income, the cannabis industry could still see significant layoffs. If the economic forecasts of 20 percent U.S. unemployment rates in the wake of the coronavirus turn out to be accurate, more than 40,000 of these individuals may eventually be laid off. And according to most recent reports from Goldman Sachs, the economy may dip as much 34 percent in the coming months.

And for many, those layoffs could become permanent. The threat of labor shortages or restrictions may push many cannabis producers to increase their investments in automation, starting immediately. Automated systems are attractive to cannabis entrepreneurs because they reduce energy usage and labor costs. If cannabis companies accelerate their adoption of automation, they may increase profit margins just enough to survive the depredations of COVID-19.

A more significant threat than automation for workers is the bankruptcy and failure of their employers. Many cannabis companies are surviving on minuscule slices of profit already, and some won’t be able to weather the coming storm. Federal government bailouts won’t be available for cannabis, which leaves state governments as the only hope for assistance. But if such support is provided, it seems clear it will be reserved for medicinal cannabis suppliers exclusively, leaving recreational producers and retailers to fend for themselves.

Can Virtual Technologies Help Rescue Cannabis Suppliers?

But cannabis cannot be grown, harvested, processed, manufactured, or distributed virtually. These procedures all involve physical processes, which require the application of labor, plus machinery to complete.

Nevertheless, digital connectivity can still have a positive impact on the functioning of the cannabis supply chain. Software programs can streamline communications and the transfer of data between buyers and sellers in ways that will be profitable and productive for all parties involved.

One of the innovators on the digital side is a company called Confident Cannabis. This Palo Alto, California-based B2B enterprise, hosts a virtual cannabis marketplace that connects growers, processors, manufacturers, and retailers who are looking to make a deal. Wholesale transactions can be completed quickly and conveniently on the Confident Cannabis platform, which only lists products that have been tested and certified in licensed cannabis laboratories.

For the convenience of their clients, Confident Cannabis hosts an additional online platform that links directly with these laboratories. Test results are posted in their entirety, with interpretations provided by Confident Cannabis personnel who understand the terminology involved. This gives potential buyers precise and accurate data about the products they’re interested in purchasing.

At present, much of the commercial activity in the wholesale sector is facilitated by face-to-face meetings, supplemented by emails, or text messages. The ad hoc, unplanned nature of this process, costs participants time and money, cutting into already razor-thin profit margins. Quality control is another problem for buyers since data from lab tests is often not available.  

Because of the ubiquitous presence of COVID-19, it may not be safe or wise to rely on personal contacts to get things done. At times, it may not even be possible, depending on quarantine status and travel limitations.  

“Our idea has always been to create an online marketplace so that people can find and discover products and do business with each other much more efficiently and in a sophisticated manner. With all the information they need to be able to, at least, start the negotiations,” explains Brad Bogus, Confident Cannabis’s vice president in charge of marketing. “In a time like this, such a tool is really useful because we might be able to help these buyers and sellers find a better way to communicate with each other to do a deal, and not to have to be driving and communicating with each of these different parties individually.”

Confident Cannabis is currently active in two states, Oregon and California. In Oregon, where they’ve operated the longest, 85 percent of the cannabis products available for sale in the state are now listed on their wholesale marketplace platform. Additionally, they’re now linked with more than 60 percent of the nation’s cannabis laboratories on their testing data website.

“One of the things we’ve tried to accomplish since we started,” Bogus explains, “is to move the cannabis industry into a place where we’re doing more efficient and effective deal-making.”

Interactive platforms that streamline cannabis transactions can save time and money for the companies that use them. Confident Cannabis is greasing the wheels of the supply chain in ways that will benefit both buyers and sellers. During times of recession or severe economic downturn, any technology that increases a business’s cost-efficiency is always welcome and appreciated.

For Cannabis, the Future Still Looks Bright

Worst-case scenarios sound ominous and are all too easy to imagine in these times of high anxiety. But cannabis producers are supplying a product that is extremely popular for several reasons, and that could be their ultimate salvation.

Throughout its brief existence, the cannabis industry has had to overcome tremendous obstacles. Burdensome regulatory requirements, unfair tax burdens, stagnant capital investment patterns that predate recent stock market declines have plagued the industry. Additionally, the lack of access to banks and limited interstate commerce would have hamstrung most industries so severely that survival prospects would have been dim.

But despite the barriers it has faced, cannabis has not just survived, but thrived. High consumer demand keeps driving the industry forward, and marijuana is also blessed with an abundance of entrepreneurs and investors who are smart, forward-thinking, technologically savvy, and never afraid to innovate.

The cannabis industry may not emerge from the coronavirus scare, and these economic dislocations, unscathed. But, it will emerge, and any interruptions in the supply chain it experiences are likely to be temporary, and subject to a rapid reversal of fortune once the economy gets back on its feet, and the coronavirus has been brought under control.