March 20th, 2020
Cannabis stocks have experienced a precipitous decline so far this year. The ETFMG Alternative Harvest ETF (MJ) — the largest ETF in the space with more than $600 million in assets under management — is down more than 45 percent and the AdvisorShares Pure Cannabis ETF (YOLO) — the second largest fund — is down more than 40 percent so far this year.
The uncertainty surrounding the COVID-19 outbreak has led many investors to either liquidate their stock holdings into cash or transition into more defensive sectors. At the same time, there’s a belief that mounting job losses could lead to lower consumer spending on non-essential goods and services. These concerns contributed to the cannabis selling seen thus far.
Despite these bearish sentiments, the reality could prove to be a lot more bullish for cannabis companies. States have exempted cannabis businesses from lockdowns, dispensaries have reported soaring sales, and early investors have started to come back into the market over the past few days.
An Essential Good in High Demand
Cannabis may be seen by some as a non-essential good, but consumers and lawmakers disagree. California, Nevada and others have both made it clear that cannabis is an essential good by letting dispensaries remain open during lockdowns. These actions have set a precedent for other states that could introduce their own lockdowns over the coming weeks.
The rationale is simple: Medical cannabis users clearly rely on marijuana in the same way that prescription drug users rely on their medications. Meanwhile, most recreational users consume cannabis as a way to deal with stress and anxiety and many lawmakers want to ensure that everyone remains calm as the COVID-19 crisis unfolds around the world.
— Bao Tran, MD, RPVI (@BaoGTran) March 17, 2020
At the same time, there’s evidence that sales may actually be on the rise due to the crisis. California dispensaries reported long lines in the early days of the lockdown as consumers have stocked up on cannabis products. Many dispensaries have since started offering curbside pickup and delivery options to promote social distancing efforts.
Eaze, a San Francisco-based delivery service, has seen average order volume rise 38% earlier this week along with a 51% increase in first-time deliveries and a 105% increase in people signing up on their website. These trends suggest that high-margin cannabis delivery could become a dominant business model across the industry over the coming months.
Investors Could Be in for a Surprise
Cannabis stocks have given up significant ground since the beginning of the year, but they’ve seen an uptick this week as news of strong sales news has permeated the market. Cannabis ETFs rose more than five percent mid-way through Friday, March 20’s session, which is a sharp reversal from record or near-record lows made earlier during the week.
Many cannabis businesses believe that the COVID-19 crisis will become a wake-up moment for consumers. After being forced to make purchases online for delivery, they may quickly appreciate the simplicity and turn to these purchasing habits as a long-term solution. This could mean higher sales for cannabis businesses at a better margin than in-person shopping.
It’s impossible to predict what the future may hold for cannabis companies, particularly during the COVID-19 outbreak, but if early numbers are an indicator, sales could remain robust throughout. These numbers could help many companies pay down their debt accrued over the past few years and put the industry on much stronger footing in 2020 and beyond.
This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.
About Ryan Allway
Mr. Allway has over a decade of experience in the financial markets as both a private investor and financial journalist. He has been actively involved in the cannabis industry since its inception, covering public and private companies.
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