Illinois’ new REC market was booming as 2020 began. After years of tribulation, many licensees and service providers nationwide anticipated strong revenue growth.
Then the COVID-19 pandemic brought a “harsh reality of closed stores, disrupted supply chains, staffing issues, and unprecedented challenges, driving down year-end revenue forecasts,” according to a new industry report. The fast-growing industry already faced hurdles like slow federal policy movement and a capital shortage. With the pandemic, “those problems looked minuscule by comparison.”
The report—Rising to the Challenge: Cannabis Executive Respond to COVID-19—from High Yield Insights Inc. and Cannabis Business Executive surveyed more than 700 decision-makers before and during the pandemic. Respondents include licensees and ancillary companies.
High Yield co-founder and president Mike Luce said he and CBE were working on the first survey results when the pandemic hit and “all hell breaks loose.” So they decided to see how the executives modified their thinking and strategies and what seemed to be working as the industry adjusted to the new reality.
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The study finds there has been “significant disruption” to suppliers and services during the pandemic.
- 45% of executives report issues getting payments from customers
- 53% of service and equipment providers expect revenue shortfalls
- 49% of “plant-touching” businesses have cut year-end forecasts
- Only 47% of executives plan to maintain pre-COVID staffing levels
- 33% of executives canceled budgets for travel and live events
- 30% reallocated those budgets to virtual online events
- 40% of executives have canceled or reduced planned spending on manufacturing equipment
- Most are also reducing or cancelling their budgets for such services as insurance, legal, accounting, banking, human resources and consulting
The report features segments with various executives on their observations so far. Many described staffing challenges, high demand and more online ordering that has prompted improvements to digital platforms.
Kris Krane, president of 4Front Ventures/Mission, noted that the crisis forced new protocols for online ordering, delivery and curbside pickup “that we probably wouldn’t have spent time on before this.” It may all remain in place after the crisis.
Krane described changes at dispensaries to comply with new rules and social distancing. Those include appointment-only shopping and more online ordering. “Some businesses are facing a decline in revenue due to these new restrictions,” he stated. He also noted he has limited spending to ensure the businesses can operate.
Christopher Shade, founder and CEO of CBD company Quicksilver Scientific, has found it difficult to get ingredients, materials and packaging from shuttered factories in Europe.
Nancy Whiteman, CEO of edibles company Wana Brands, described how marketing has pivoted to emphasize “consumer-facing digital marketing” such as virtual events. She noted Wana’s use of the new I Heart Jane online ordering app that lets consumers order products directly and pick them up at a dispensary.
She also pointed out that nearly overnight, “cannabis achieved the public acceptance its supporters have been seeking for decades or longer.” The pandemic highlighted its importance to consumers, she stated. Business and civic leaders have taken note.
A strong industry?
Julie Herzog, managing partner at Fortis Law Partners and Full Velocity Consulting, pointed to busier employment and real estate law practice as clients seek help with lease negotiations and rent abatement options. The firm also now assists with business pivots.
Anticipating lower valuations, clients have shelved plans to sell. Herzog expects to help them on financial restructuring, bankruptcy-related issues and loan term changes.
Gary Cohen, CEO of Cova that makes software for dispensaries, recalled an “initial panic” among retailers who feared they would have to close. Then they got the “essential business” designation. But he noted hurdles they face, including a lack of federal assistance and more limited in-store business because of social distancing.
Cohen also sees a positive development unique to the cannabis industry. Because of federal constraints, the industry’s supply chain has its own infrastructure. Transportation and distribution networks continue operating. This resulted in few limits in product availability, he stated.
“There is now clear evidence that cannabis demand, governmental support and a strong supply chain are in place,” he said. The crisis, he believes, also shows the investment community that legal cannabis is recession-proof. And it sped up the timing for entrepreneurs entering the industry or expanding. He says April and May were two of the best months ever for Cova in signing new stores in the U.S. and Canada.
To Luce of High Yield, the report brought some surprising insights. He pointed to Cohen’s observation on the supply chain’s resilience, attributing it to the industry having had to build its own supply chain, rather than use those created by mainstream industries.
“Cannabis is sort of oddly well-positioned to sort of fix its problems in-house,” Luce said.
Future reports, he says, might focus on staffing. That’s an area that juggles preventative health measures, social distancing, new operating tasks, shift schedules, and decreased staffing—all while consumer demand hasn’t fallen off.
He also wonders about companies’ strategies for advertising, marketing and events as they have significantly cut spending there.
“It would be wise for them to place a few different bets,” he said.