At the time of writing this article, more than 110,000 cases of COVID-19, commonly known as the Coronavirus, have been confirmed across 109 countries and regions. Due to the disease’s relatively high mortality rate of 3.4%, millions of people in mainland China and Europe are under quarantine, with entire regions in lockdown.
Like many other industries, the cannabis industry is beginning to feel the burn from Coronavirus with reports of mass disruptions due to factory shutdowns in China, global cannabis event cancellations, decreased tourism, and cannabis stocks being hit, hard.
But it's not all gloom and doom. Opportunity awaits for those brands resourceful enough to use the current situation to their advantage. Keep reading to find out more.
Countless North American cannabis businesses depend on shipments from China, for packaging materials, raw materials, and even their end product itself. Cannabis hardware companies (vapes, cartridges, batteries, etc.) are among those that are the most overwhelmed with some already announcing production delays due to Chinese factory shutdowns.
Feather Co., a company that provides vaping products to some of the biggest cannabis companies such as Canada’s Organigram, has reported that it is experiencing delays of two to four weeks. Feather’s CEO Pat Lehoux, who has curated a relationship with his China-based suppliers knows that delays would be even longer for companies that do not have personal relationships with Chinese factories.
“When it comes to the delay a customer will actually get when dealing with a Chinese company, it really comes down to the relationship you have with that manufacturer,” he told Bloomberg. “If you’re going through a third party and you don’t have that close relationship, I think the delays will be more severe,” said Lehoux.
Other companies are stocking up on cannabis hardware to try and outlast supply-chain disruptions. Curaleaf Holdings Inc., which is the largest US-based cannabis company, recently purchased about $2 million worth of vape products from a U.S. supplier, which should last about five months, Executive Chairman Boris Jordan said in an interview.
Profit margins on vape products are already slim, and with raw material prices going up, the industry as a whole will most-definitely see a disruption, with the Coronavirus to blame.
It’s not just vape and consumption hardware that is in danger. Growers and cultivators purchase tools like lighting systems to HVAC systems from China. The 2019 trade war between the US and China already had companies contending with potentially higher price points for these products, but 2020 could be marked by shortages of all products from LED light bulbs to the materials used to make HVAC systems.
With fears of contracting and spreading the Coronavirus due to travel and close contact with people at cannabis events and conferences, numerous functions have been postponed and even canceled.
So far, ICBC Berlin have been postponed, while its Barcelona counterpart seems set to take place. CannaTech Israel, has also announced the cancelation of its current date. CannaTech Israel’s organizers plan to postpone the convention until later this year, while ICBC Berlin said it would hold the conference on July 29-31.
Saul Kaye, CEO of iCAN: Israel-Cannabis related: "Our number one concern is the health and safety of our attendees and speakers, our partners, our colleagues, and our vendors. While we are disappointed to postpone CannaTech Tel Aviv, we are very confident it will be worth the wait.”
Late last week, the massive South by Southwest (SXSW) event in Austin, Texas was also canceled. “We are devastated to share this news with you,” SXSW organizers posted on the event’s website. “’The show must go on’ is in our DNA, and this is the first time in 34 years that the March event will not take place.”
“We are now working through the ramifications of this unprecedented situation.”
The American Herbal Products Association (AHPA) also indefinitely postponed the upcoming Hemp-CBD Supplement Congress that was supposed to take place on April 14-15 in Portland, Oregon.
The International Monetary Fund (IMF), has announced that the global economic decline due to the Coronavirus outbreak will be more severe than initially projected. At a press briefing in Washington, DC, on March 4, Kristalina Georgieva, the IMF’s managing director, said that “unfortunately over the last week, we have seen a shift to a more adverse scenario for the global economy.”
The IMF’s initial assumptions were based on projections that the crisis would be limited to China and would be fully contained. “We have seen this last week that our baseline scenario no longer holds,” Georgieva said.
Cannabis stocks did not perform well in 2019. In fact, many of them lost up to half of their value in the last nine months of the year. Their decline was accredited to everything from Health Canada's license application backlog, Canada's delayed launch of derivatives, high US tax rates, fraud, the lack of more broad US cannabis reform, and trouble receiving financing for cannabis companies in the US.
The main stock pains, at least in the short term, could begin to be felt by more ancillary cannabis stocks, which have no direct contact with the cannabis plant but are just as crucial to the industry’s operation.
There could, however, be a silver lining for North American companies, as they could now get a unique chance to step in and fill the gaps that will be left by China-based manufacturers and suppliers.
Small and medium-sized companies and even large manufacturers based in North America that have the means to produce the products needed for the cannabis industry may even be able to create a foothold and new relationships with brands that are in need of a more reliable supply chain.
At the same time, use the canceled convention you planned to attend as an opportunity to spend your budget in a more meaningful way. The events may be cancelled, but your customers are still online, waiting to find the next great product to take their mind off the news cycle.
Use the money you would have spent on flights, hotel rooms, and late-night dinners with prospective new business partners to kick-start a successful online campaign and meet your future customers where they currently are: on social media. CannBe's unique access to the world's largest cannabis social media reach can be your best friend in this situation.
The effects of the Coronavirus and our governments' response is largely out of your control, but whether your brand can weather this storm and come out ahead of the competition is entirely up to you.
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