COVID-19 ISO Insights

How is COVID-19 Impacting the Cannabis Industry?

April 27, 2020

By: David Geller, CPCU

Cannabis is a subject the ISO Emerging Issues team has been keeping tabs on for several years as legalization continues to steadily progress through many states in the United States, and abroad. But in a seemingly unprecedented period, how could the landscape be altered by COVID-19’s spread?

Potential Regulatory Impacts in 2020

A Forbes article detailed how, at the outset of 2020, more legislative progress appeared to have been on the horizon. Missouri, a state that permits medical marijuana, for example, had planned to gather enough signatures to place a marijuana legalization measure before voters in November, 2020. However, collecting enough signatures to qualify may be unfeasible during this period and activists are reportedly considering pivoting their goals to the 2022 election.

Similarly, Forbes has reported that a Nebraska campaign temporarily suspended its efforts to obtain enough signatures that would have placed a medical cannabis measure on the upcoming November ballot.

Forbes also notes that marijuana reform bills that may otherwise have gone through state legislatures in Connecticut, New York, Vermont, and potentially other states have been tabled for the time being.

Potential Economic Impacts in 2020

Prior to the COVID-19 outbreak, cannabis enterprises, according to CNBC, were already struggling with securing financing and other support from financial institutions, in part, reportedly due to fears of federal prosecution as a result of the product’s Schedule 1 status under the Controlled Substances Act (CSA).

These financial issues don’t appear to be relenting during this pandemic. CNN Business recently reported that the $2 trillion stimulus package that was passed in March “specifically excluded both plant-touching and ancillary cannabis businesses”, according to a cannabis investor.

Additionally, like many other businesses, Forbes has reported that a large number of cannabis enterprises have experienced significant disruptions procuring necessary components through the supply chain (the manufacturing of various products involved in cultivation is completed in China).

How are States and Cannabis Enterprises Adapting?

While, per Lexology, all but two states (Missouri and West Virginia) that legalized cannabis to some extent have deemed dispensaries to be an “essential service”, these businesses may have to adapt to stay afloat during this period.

With limitations—if not complete bans—of people entering into physical stores, a wide range of companies have pivoted to delivery to continue making sales. Even though the cannabis industry reportedly faces additional hurdles to make this transition, it appears they are seeking to do the same. Bizjournals has reported that the Oregon Liquor Control Commission (OLCC) has loosened restrictions on cannabis companies to allow for curbside sales, as well as deliveries, in the immediate area around the store.

Prior to the outbreak, regulatory restrictions were reportedly just one dynamic that have impeded the ability of numerous cannabis companies to facilitate sales online and through delivery systems. Another limitation is that many companies could only accept payment in form of cash. However, as deliveries appear to be picking up during this crisis, CNN Business reports that a fintech company “that uses clearinghouse transactions to allow for cashless payments” would assist in one company’s payment system.

Another unique scenario is playing out in Massachusetts, which, per Mass Live, is allowing for medical, but not recreational, dispensaries to keep operating during the state of emergency. Perhaps in response, from March 23rd, to April 1st, the Massachusetts’ Cannabis Control Commission (CCC) received 1,300 new medical marijuana patient applications, a stark jump from the 500 applications that were filed in the ten day period prior. The executive director of the CCC, per Mass Live, speculated that this surge could be due to people previously using the recreational market to obtain their medicine, potentially due to privacy reasons (Massachusetts reportedly doesn’t maintain records of purchases in the adult-use market). This sentiment was echoed in an interview with the CCC chairman, who said:

“We've always known that a number of people are using the adult-use industry for their medical needs, so this has been going on for a while.”

As demand from medical dispensaries may be increasing in Massachusetts, and to help provide some revenue for adult-use stores. the CCC has informed certain non-medical growers that their crops can be transferred into the medical supply chain.

Lastly, with respect to the issue of disrupted supply chains, a founder of a cannabis creative agency told Rolling Stone that, upon being advised of the initial issues China was facing at the outset of the COVID-19 outbreak, her clients switched vendors to U.S. based companies.