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3 Reasons Cannabis Demand Is Up In The Coronavirus Pandemic

By David Jagielski – Apr 11, 2020 at 8:28AM

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Will these factors keep pot sales robust in April too?

Cannabis sales were soaring in March, especially during the first half of the month as the coronavirus became a global pandemic. Washington state saw a 9% increase in March's revenue from cannabis compared to the prior year, California's sales were up 53% year over year (although in previous months, its growth rate was around 75%), and Oregon posted record monthly revenue of $84.5 million, up from $61.2 million a year ago.

Pot sales were soaring, but they were also slightly inconsistent. California-based cannabis cultivator Goldenseed recently surveyed marijuana users across the country and found three key reasons demand was up in March. Let's take a look at the factors driving increased cannabis sales to see if this is a trend that may continue and what it tells us about investing in cannabis stocks today.

1. Consumers are concerned about a pot shortage

The main concern among those surveyed is the fear of a cannabis shortage as a result of the coronavirus pandemic. A total of 35% of respondents said this was the most pressing issue for them. Point-of-sale data from Headset, which tracks recreational cannabis sales for multiple states, corroborates these findings. Mid-March is when consumers were stockpiling their supply of cannabis -- just days after the World Health Organization declared the coronavirus a pandemic. Cannabis sales surged in California, Washington, and Colorado before falling in the following weeks.

2. Dealing with stress and anxiety

Using pot to deal with stress isn't uncommon. In fact, 40% of marijuana users said they were using more pot during the pandemic and 74% said stress and anxiety were the main reasons for their current cannabis use. With news stations running alarming headlines around the clock about the coronavirus pandemic and consumers worried pot supplies may become scarce, it's not hard to see why anxiety and stress levels are high. 

Cannabis plant.

Image source: Getty Images.

New Frontier Data conducted a similar survey in 2017 that found relaxation was the main reason (55%) people turned to cannabis. However, stress and anxiety didn't rank far behind, coming in at 40% and 39%, respectively. (There was no combined percentage of the two.) But it does suggest that relaxing or relieving stress or anxiety remains the key reason for cannabis use. And with stress levels higher as a result of the pandemic, it certainly makes sense that people are consuming more cannabis right now.

3. Boredom in isolation

One of the more surprising responses from the Goldenseed survey was that more than 37% of people indicated they were consuming pot was to relieve boredom. This was not a result on the 2017 New Frontier Data survey, so it might be a result of people who are in isolation due to the pandemic and are looking for ways to pass the time when they can't go about their normal social lives.

What impact might this have on the cannabis industry?

The coronavirus has been an official pandemic for about a month and the one thing investors shouldn't do is read too much into short-term trends. The sales data and the survey results do suggest some changes in buying patterns, with consumers making large purchases more sporadically. However, that could change as consumers deal with job losses and financial challenges that lie ahead.

Harvest Health & Recreation (HRVSF) has four store locations in California currently offering curbside delivery. When the company released its year-end results on April 7, it was cautious when providing any sort of guidance or outlook for the future, saying, "We expect to report first quarter 2020 sequential growth in line with the sequential growth reported for the fourth quarter 2019." In Q4, Harvest Health's sales rose by 14% from the third quarter.

With minimal mention of COVID-19 and no word on a forecast for the second quarter (which encompasses April through to the end of June), it appears the company isn't sure what to expect just yet. That's no surprise given how volatile sales have been in the past month.

After April, investors should have a better idea of how the coronavirus might impact the industry's sales. Consumers will have begun to adapt to job losses and lockdowns, and then investors will start to see just how high of a priority cannabis remains. Harvest Health's first-quarter results will likely still look strong, but the real question mark is how the second quarter of 2020 will play out.

There are many question marks in the cannabis industry right now, which makes it a dangerous time to invest in pot stocks. Cannabis investors might want to hold out at least another month to see how April's sales look and whether the demand for cannabis is able to withstand the economy's current headwinds.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Harvest Health & Recreation Inc. Stock Quote
Harvest Health & Recreation Inc.

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