Five Months Into The Pandemic, How Is The Cannabis Industry Doing?
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In early 2020, the world as we know it changed when COVID-19 erupted into a global health crisis. This virus continues to wreak havoc on public safety and the economy, sparing no community or industry. Despite these challenges, the cannabis industry has shown incredible resilience through these uncertain times.
After being deemed “essential,” cannabis sales spiked. Many states approved temporary cannabis delivery models during shutdowns, a feature of the typical retail experience that was previously unavailable to most cannabis consumers. Now, after seeing the success cannabis businesses found while retailers in other industries suffered, many states are working to make those same e-commerce models permanent.
My company LeafLink facilitates 32 percent of all wholesale cannabis transactions in the United States between over 6,900 businesses, providing us with the largest wholesale cannabis data set in the country. According to our analysis, the cannabis industry grew approximately 45 percent between January and May. When compared to retail sales across all industries, which grew by 5.5 percent during the same time frame, and beer and wine sales, which grew 42.7 percent, according to the Census Bureau, this growth indicates a clear strength in cannabis that does not exist anywhere else.
It seems cannabis may be among the few recession-proof industries. A future with expanded legalization and fewer FDIC restrictions could further open up a wealth of business opportunities and medical research to meet customer demand amid a period of depressed economic activity.
In The State of the Cannabis Industry 2020, a report we collaborated on with Vangst and Flowhub, we found that this relatively new industry stands tall as one of the fastest-growing sectors in the economy. By analyzing wholesale purchasing data, dispensary sales, and employment trends, our study offers a holistic examination of the current state of the cannabis industry and a promising outlook for the rest of 2020 and beyond. Here are three key insights.
Growth in emerging and mature markets has propelled the industry.
COVID-19 forced cannabis businesses to face new obstacles as they dealt with changing regulations, social distancing requirements, and remote workflows. While other sectors such as hospitality and tourism suffered serious setbacks due to the health crisis, cannabis is flourishing and generating state tax revenue.
Based on our in-depth analysis, the cannabis industry in key cannabis markets such as Colorado and California is doing better than it was at the start of the year. Wholesale purchases increased by 34 percent and 44 percent respectively from the beginning of the year through May, as measured by LeafLink's Gross Merchandise Value (GMV), surpassing 2019’s pace of growth. On the retail side, performance rebounded similarly. In most mature cannabis markets, over 50 percent of retailers purchased more on average per week between April 4th and June 1st than they did during January. In Oregon specifically, 61 percent of retailers purchased more during this time period.
While we did not explicitly discuss younger markets in our report, our analysis found exponential growth in many states throughout 2020. In Michigan and Oklahoma in particular, two of the country’s fastest-growing cannabis economies, sales growth has well exceeded that of mature markets so far this year.
E-commerce has become the new normal.
Prior to COVID-19, the cannabis industry was already becoming increasingly saturated with dominant operators, many of whom recognized the need to achieve operational efficiency through technology. This year’s crisis has made technological enablement a strategic priority for all industry participants. Based on Vangst's survey of both plant-touching and ancillary businesses, sales and IT roles are considered a top hiring priority as organizations recover. This highlights a growing emphasis both on meeting client needs and on technological development.
Retailers have adjusted too. Due to canceled events and stay-at-home restrictions, sales around the industry’s biggest holiday, 4/20, were softer than previous years. However, dispensaries that were able to pivot to e-commerce and order-ahead capabilities sold 22 percent more on average in the weeks leading up to 4/20 than dispensaries without those tools. They also saw 8 percent more transactions and a 13 percent increase in average order amounts, according to Flowhub. As a result of this shift toward e-commerce, these trends will likely persist even after a vaccine is developed as consumer habits change and the adoption of this technology proves fruitful for many cannabis businesses.
E-commerce has been key to managing wholesale relationships during this time as well. LeafLink’s success has been directly tied to our ability to streamline and enhance operations for buyers and sellers, allowing our customers to focus on what they do best – produce and sell cannabis products, and this has been especially important in these challenging times. The industry’s continued adoption of supply chain automation and e-commerce tools has empowered it to quickly meet demand, particularly in the spring when the first COVID-19 wave hit and orders surged in anticipation of future disruptions. This summer, as consumer demand remains strong nationwide, businesses have continued to adapt and embrace new technologies, helping the industry grow at a faster pace than it did during 2019.
The industry has proven to be resilient.
The cannabis industry’s strong performance through the pandemic speaks to the type of leaders within its ranks. This industry is young and, at the same time, highly-regulated, and the entrepreneurs who have the gumption to start a cannabis enterprise have proven they have an ability to problem-solve, take calculated risks, and adapt to the unknown. COVID-19 is not the first obstacle that cannabis leaders have faced. Between licensing and regulatory changes across multiple levels of government, and lingering ethical, banking, and logistical challenges associated with a now multi-billion dollar industry, those who helped the industry persevere continue to prove resilient.
The State of the Cannabis Industry 2020 offers valuable insights on how these cannabis leaders are making strides - and how future entrepreneurs can make an impact. 2020 will be remembered as one of the most tumultuous years of our lifetime, but also as a pivotal year for the cannabis industry. This year, we faced some of our biggest challenges yet -- and the industry is emerging stronger and more nimble. Consumer demand is at a record level, many businesses are not just surviving, but thriving, and legislators are becoming increasingly aware of the economic value legalization and modern regulation can create. Cannabis is here to stay, and this industry is ready for whatever future lies ahead.
For a deeper look at the data behind the report, please contact me at: firstname.lastname@example.org.