Coronavirus’ Impact on the Cannabis Industry

Are you aware of the coronavirus’ impact on the cannabis industry? The coronavirus (COVID-19) pandemic has affected the world economy more than any event in the past decade. Unemployment has exploded, and has still yet to recover to the rate it was prior to the official declaration of the pandemic (3.5% in January 2020). In addition, businesses have collapsed, with 200,000 closures estimated to be attributable to the pandemic and its effects. Stay-at-home orders have pressured tens of millions of American households to change their lifestyles. In some ways, this has been advantageous to the legal cannabis industry, while in others it has presented new challenges.

How the Coronavirus Crisis is Reshaping the Cannabis Industry

One element of the cannabis industry that the coronavirus pandemic has put into perspective is how tenuous the distinction between ‘recreational marijuana’ and ‘medical marijuana’ is, in practicality. Many states cannabis use is medically permitted and have declared medical cannabis dispensaries to be essential businesses. Others, such as California, Oregon, and Colorado, permitted both medical dispensaries and recreational cannabis stores to remain open in spite of their stay-at-home orders. In response, many cannabis businesses put measures in place to protect their customers and staff, such as curbside pickup, or additional shifts for delivery staff.

Thought leaders in the legal marijuana industry have speculated that the pandemic will affect the types of cannabis products the market consumes. Because of the way the virus spreads, people are likely to be more conscious of the dangers of passing joints. Alternative products that can be shared without being an easy vector for viral transmission include gummies, beverages, and baked goods.

There are companies that have turned to mass redundancies in order to try and weather the coronavirus storm. A Canadian cannabis production company, warned it would be reducing its workforce, and later let nearly half of its employees, 400 people, go with the intention of hiring them back later. Other companies had to furlough workers because of local government decisions closing dispensaries for anything other than deliveries. Dispensaries and retail facilities in areas that rely on tourism, such as Las Vegas, are seeing a downturn in sales because of the significant decrease in vacationers, further necessitating a tightening of belts and potential redundancies.

Impact of Coronavirus on the Cannabis Supply Chain

In the initial stages of the outbreak in Wuhan and its ripples throughout China, many factories were closed throughout the country, which had a significant impact on general production across many industries. For the cannabis industry in particular, supply chain has been an issue. It has been difficult for American companies to source domestic production, as there are few American facilities prepared to produce vaping hardware or specific packaging for cannabis products. While these Chinese factories are now generally back to work, many are operating at reduced efficiency owing to the need for social distancing measures to protect employees. KushCo (not a holding in the Cannabis Growth Fund) is one big industry name facing shortages. US companies have been moving quickly to find alternative production facilities in countries like India and Mexico.

Relief Legislation and the Cannabis Industry

The coronavirus pandemic presented opportunities to support the cannabis industry and loosen regulations. Cannabis companies were fighting the difficulties of COVID-19 with the federal government having tied one of their hands behind their backs. Unfortunately, these opportunities were not taken up, for the most part. The HEROES Act, which passed the House of Representatives and was sent to the Senate, included the SAFE Banking Act, This Act intended to allow banks to provide services to cannabis companies in states where cannabis is legal. The indication that there are representatives thinking of how the cannabis industry can be supported in this difficult time is encouraging, but the lack of follow-through from Congress has hampered business.

While support for the cannabis industry at the federal level has been anemic, state politicians have been more effective. Governor Gavin Newsom of California was one of the first governors to instigate a state-wide lockdown which specifically designated dispensaries and adult-use shops as essential businesses. Illinois state rep Sonya Harper introduced a bill in the state legislature to allow cannabis dispensaries to deliver in Illinois.

Legal cannabis is one avenue of income that many states have yet to embrace, but which the demand for appears to be pandemic-proof. In fact, after the CDC recommended that medical patients using marijuana to manage their conditions stock up on a month’s supply prior to lockdown, many cannabis companies reported a surge in sales. Stores in the San Francisco Bay Area reported sales increases of more than 50% during the pandemic, as opposed to before.

The Impact of the COVID-19 Pandemic on the Cannabis Industry, Long Term

The effects of the pandemic are still being determined in many respects, as we have yet to fully emerge from its shadow. What is clear is that the newfound status of cannabis businesses as ‘essential’ is a step forward for broader acceptance by society, and legalization in more states. As the pandemic’s hold on the US lessens, Virginia, New York, and New Mexico have legalized marijuana for recreational use. More states will likely follow in their footsteps.

Another aspect in which the pandemic appears to have changed the industry is the way people consume cannabis. Edibles have been rising in popularity, possibly as a response to the perceived dangers of aerosol exchange exacerbated by smoking, and particularly using vapes. The cannabis market may continue to change as new opportunities open up across the US and beyond, and preferences change.

The Cannabis Growth Fund offers an opportunity for investors to support publicly-traded cannabis companies during the pandemic and afterwards.

Foothill Capital Management is the advisor of the Cannabis Growth Fund and is not affiliated with the distributor.

OF SPECIAL NOTE

Statements, estimates and forecasts are subject to significant legal, business, economic, and competitive uncertainties, including competition, limited access to bank services, litigation, enforcement actions, and the receipt of government authorizations. This includes differences in, among other things, laws, regulations and guidelines relating to the manufacture, transportation, and storage of cannabis, and the conduct of operations, which vary among the U.S. federal government, various states, and foreign jurisdictions. There can no assurance that such estimates and/or forecasts will be realized, and these are not indicative of future investment performance. Historical data is not indicative of future performance.

Before investing you should carefully consider the Fund’s investment objectives, risks, charges and expenses. This and other information is in the prospectus, a copy of which may be obtained from 888.885.0588 or at https://www.cannabisgrowthfunds.com/. Please read the prospectus carefully before you invest.

Investing involves risk, including possible loss of principal. The cannabis industry is subject to rapidly evolving laws, rules and regulations, and increasing competition which may cause such companies to change business model, shrink or suddenly close. These may limit access to banks, and create significant burdens on company resources due to litigation, enforcement actions, receipt of necessary permits and authorizations to engage in medical cannabis research or to otherwise cultivate, possess or distribute cannabis. Possession and use of cannabis is illegal under federal and certain states’ laws, which may negatively impact the value of Fund investments. Where legalized by states, cannabis possession and use remains a violation of federal law. The companies in which the Fund invests are subject to various laws and regulations relating to the manufacture, management, transportation, storage and disposal of cannabis, including health and safety, conduct of operations, and environmental protection. Even if a company’s operations are permitted under current law, they may not be permitted in the future, and a company may not be able to continue operations in its current location. Controlled substance legislation differs significantly between countries and may limit a company’s ability to sell products.

Foreign investing involves social and political instability, market illiquidity, exchange-rate fluctuation, high volatility and limited regulation risks. Emerging markets involve different and greater risks, as they are smaller, less liquid and more volatile than more developed countries. Investments made in small, mid-capitalization and micro-capitalization companies may be more volatile and less liquid due to limited resources or product lines and more sensitive to economic factors. Fund investments will be concentrated in an industry or group of industries, and the value of Fund shares may rise and fall more than more diversified funds. Purchasing and writing put and call options entails greater than ordinary investment risks. Options ownership involves the payment of premiums, which may negatively impact Fund performance. Please see the prospectus for details of these and other risks. Distributed by IMST Distributors, LLC.