As with essentially all aspects of American life, COVID-19 threatens to be a massive disrupter in the cannabis industry.
As most cannabis operators and ancillary services providers are well aware, securing cannabis-related investments in the pre-COVID-19 world presented substantial obstacles. With worldwide markets dropping and investors drawing on their purse strings, the cannabis industry will likely feel a tighter pinch on access to investment dollars. Alternatively put, the already-tight outlook for capital in the cannabis industry will likely be exacerbated by COVID-19, and could result in some companies in the industry failing altogether.
However, the Fed’s recent interest rate cut to near zero, and the Small Business Administration’s recent offer to designated states and territories of low-interest federal disaster loans could result in loans that would provide working capital to small businesses suffering substantial economic injury as a result of COVID-19.
COVID-19 could also affect many aspects of the global supply chain. As with traditional agricultural crops, China is a major provider of hardware required to process, cultivate and manufacture final products in the cannabis industry. While the Chinese provinces that are responsible for a large majority of the hardware (i.e., Shenzen) are back “on-line,” the closure of these facilities have already resulted in delays, and increased costs as operators attempt to source locally.
Lastly, federal and state legislatures will likely be consumed – and rightly so – with bills aimed at combatting COVID-19 or economic recovery related to COVID-19 impacts. With a somewhat singular focus on such bills, it is possible the gains federal and state governments have made in decriminalizing or normalizing the cannabis industry (see SAFE Banking Act, MORE Act, FDA review of CBD, state-specific legalization legislation) will be put to the wayside as governments deal with more pressing COVID-19-related or adjacent matters. This will mean lobbyists will either need to ensure cannabis remains top-of-mind, or revisit these bills once legislatures have the bandwidth to deal with such non-time sensitive issues.
As for supply, there is no indication COVID-19 will impact worldwide or nationwide supply as there is currently a bottleneck between production and distribution. From a land use perspective, more production is permitted than distribution resulting in a recently saturated marketplace. The good news is that there is no indication that demand for supply will decrease with solitude and self-care becoming a priority to the general public. In fact, as many cities and counties institute “shelter-in-place” ordinances, jurisdiction-specific regulations are often identifying cannabis-related operations as “essential business” along with other medications and consumer products.
There is little concern the cannabis industry will be irretrievably damaged by COVID-19. Instead, while one can anticipate the initial shock of this universal pandemic will result in short-term impacts, there is much to be optimistic about as this fledgling industry continues to move forward post-COVID-19.
How Can We Help?
In these unprecedented times, the Sheppard Mullin Cannabis Industry Team can assist in confirming your business’s compliance with federal, state and local COVID-19-related mandates, preparing for initial setbacks and ensuring you are well positioned to take full advantage of recovery efforts.
For an in-depth discussion, listen to Whitney Hodges on Episode 73 of Sheppard Mullin’s Nota Bene podcast.
For more legal insights visit our Coronavirus (COVID-19) page.