The spread of the coronavirus disease 2019 (COVID-19) is reshaping societal habits before our eyes. Mitigation measures that would have been thought virtually impossible in the United States have now become the norm, with nonessential business activity grinding to a halt in a number of states, and social distancing guidelines put out by the federal government recommending Americans stay at least 6 feet apart from others through at least the month of April.
What might appear like an overreaction on the surface is a real cause for concern. You see, the number of confirmed coronavirus cases surpassed 1 million worldwide this past Thursday, with nearly one in four cases originating from the United States. For all intents and purposes, we are the epicenter of the COVID-19 outbreak. It's the uncertainty of when the infection rate will flatten out, and therefore when the most stringent mitigation measures will end, that's ravaged the stock market of late.
Surprise! Recreational cannabis dispensaries are still, mostly, open for business
Amazingly, though, not every industry you'd think has been shut down amid the coronavirus pandemic. We absolutely expect hospitals, emergency response personnel, and grocery stores to remain open, as these workers provide essential services. But you might be surprised to learn that marijuana dispensaries and cannabis supply chains are being considered essential in a number of states.
As some of you may already know, 33 states have legalized medical marijuana since 1996. Of those 33 states, at least 28 are currently allowing medical pot patients to fill their prescriptions. Most of these states view medical cannabis as something of a pharmaceutical product, thereby allowing it to fall under the scope of an essential service.
What you might find surprising is that eight states are still allowing dispensaries to also sell adult-use cannabis, according to Marijuana Business Daily, even with more and more state governors calling for stay-at-home mandates. These eight states are (listed alphabetically):
You'll note Maine isn't on the list because its recreational industry hasn't launched yet. Meanwhile, Vermont has legalized adult-use pot but has not yet given the go-ahead for retail stores to sell the product. The only state to actually ax recreational sales over the COVID-19 outbreak, thus far, is Massachusetts.
Keep in mind that it isn't necessarily business as usual for adult-use dispensaries in these eight states. Whereas some states are allowing a limited number of people inside cannabis stores as long as they maintain social distancing standards, other states, such as Nevada, have gone to home delivery only for the time being.
Make no mistake about it: The pot industry will feel a pinch from the coronavirus pandemic
However, just because the marijuana industry's doors have mostly remained open during the coronavirus pandemic, it doesn't mean the industry won't see a number of adverse impacts.
The most obvious issue (and this goes for Canadian pot stocks, too) is supply chain disruptions. With COVID-19 originating within China's Hubei province, strict lockdowns measures there, and throughout other parts of mainland China, disrupted the manufacture of vape pens and accessories, among other products. It's unclear when supply chains for the cannabis industry will fully normalize.
A second problem is that COVID-19 has put an end to conferences and trade shows. These conferences are perfect for unveiling new, high-margin products, and for working out new distribution agreements. Without these trade shows, industrywide collaboration could diminish, and it could be more difficult for pot stocks to launch new products.
Another issue is that the coronavirus has virtually halted domestic travel, which is problematic for tourist-reliant destinations, such as Las Vegas, Nevada. It's especially worrisome for Planet 13 Holdings (PLNH.F 4.72%). I've heaped plenty of praise on Planet 13 for being a go-to experience for cannabis enthusiasts. Its 112,000-square-foot dispensary located just west of the Las Vegas Strip houses a restaurant, events stage, and a consumer-facing processing center, in addition to retail. But it relies on tourism to drive in new business. With the Las Vegas Strip essentially shut down, Planet 13's very-near-term outlook isn't so hot.
Finally, dispensaries are likely going to see smaller tickets per sale given that consumers aren't allowed to browse products in person in many states. Although initial sales of cannabis spiked in mid-March, they've tapered off considerably since then in states like Colorado, California, and Washington, signaling it could be a rough couple of weeks or months for the pot industry.
This could be a problem for Cresco Labs (CRLBF 5.45%), which has bet big on the California market. Earlier this year, Cresco completed its acquisition of Origin House, a cannabis distribution license holder in California. It's through Origin House that Cresco aims to get its pot products into more than 500 dispensaries throughout the Golden State. But if many of these dispensaries are stuck doing curbside pickup or delivery, sales could be down across the board for operators like Cresco Labs.