With the coronavirus pandemic looming, the cannabis industry braces for impact. The new virus could impact the cannabis industry in these four ways.
The cannabis industry is not immune to the new coronavirus disease known as Covid-19. When an economic superpower is overcome by an epidemic that halts trade and shuts down entire cities, it’s going to have a ripple effect.
Here are four ways the coronavirus could impact the cannabis industry.
Shortages of Inexpensive Hardware and Testing Equipment
In the small print on most cannabis vaporizers, consumers can spot the “Made in China” label. The coronavirus’ outbreak in China has halted a workforce, causing a record low month in manufacturing activity.
Last month’s government-imposed factory shutdowns will impact the cannabis vaporizer companies that depend on the Chinese supply chain. Keep in mind, nearly all vaporizers, vape cartridges, and vape batteries are manufactured in China.
In an interview with Marijuana Business Daily, Richard Huang, CEO of Cloudious9, a cannabis vaporizer manufacturer based in Hayward, California, said China’s work stoppage will influence all sectors of the cannabis industry, spanning from cultivators using LED lighting, to greenhouse structures, packaging, and lab equipment providers.
“It could be a very difficult year for hardware companies trying to maintain a steady supply of inventory,” Huang told Marijuana Business Daily.
Shortfalls of Hemp Imported from China
China is the world’s leading hemp producer. It will take a lot to change a 5,000-year-old tradition, but with a broad slow down of production, hemp cultivation in China will be impacted. A report from the Washington Examiner shows capacity at major Chinese ports has been at least 20 percent lower than normal.
With the long-standing tradition of hemp cultivation and a hemp market dedicated to textile production, China has been able to produce clothing and textiles at rates and costs that North America and other economies simply cannot compete with.
One unexpected consequence from the coronavirus is a bigger assurance that China will make good on the recent trade agreement with the U.S. The agreement includes a promise from China to purchase $40 billion to $50 billion worth of U.S. farm goods over two years, hemp included.
Blow to Stock Markets
When the coronavirus landed in the U.S., the Dow Jones Industrial Average took a nosedive. The spread of the virus brought on the Dow’s biggest one-day decline in history. The drop marked Wall Street’s worst week since 2018.
The Dow began to make a comeback in the first days of March, but the downturn in stock markets may have already caused investors to become even more hesitant to bet on cannabis. According to a CNBC market report, fears over the coronavirus disease’s impact on corporate profits and the global economy led investors to pursue safer alternatives to stocks.
“Global investors will be prone to panic as the virus arrives at their doorstep, underscoring the need for near-run prudence and patience before augmenting favored holdings,” strategists at MRB Partners wrote in a note. “The outlook is uncertain, or rather certainly bearish in the near term as quarantining spreads around the world, but with considerable doubt as to the duration and depth of the economic fallout.”
Shoes to Fill in the U.S.
As much as the threat of a global pandemic is frightening and tragic, there are some impacts that could benefit the U.S. cannabis industry. According to New Frontier Data, China’s hemp market is expected to hit $1.5 billion in 2020. That could leave some pretty massive shoes to fill and space for the U.S. to gain a foothold in hemp.
Another possible outcome from China’s economic shutdown is a shifting in reliance on certain cannabis-related hardware to local businesses. Nic Easley, CEO of Denver-based 3C Consulting, told Marijuana Business Daily that threats to the supply chain are a “huge wake-up call.”
“It’s forcing companies to look at their supply chain. ‘Where do my products come from? Do I have multiple options for vendors?” Easley said. “Everyone was looking for the cheapest option forever, and that’s China.”
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