Highly Essential? Legal cannabis continues to come of age despite Covid-19

May 25, 2020

If you’d told people a decade ago that one day a cannabis dispensary would be deemed an essential business that must stay open during a pandemic, people would probably tell you that you’ve been smoking too much of the stuff. Fast forward to 2020 and there’s a good possibility that you are depending on where you live.

Even during the Covid-19 pandemic, the list of states that have deemed medical cannabis operations essential to some degree is considerable. Some states have relaxed delivery regulations or authorized curbside pickup to allow users to obtain medical marijuana while adhering to social distancing requirements. And other states are allowing doctors to make prescriptions for medical cannabis over the phone in lieu of requiring in-person evaluations. 

“Nothing is given to us in the cannabis industry. When the pandemic first hit, I had to petition my local government to be labeled as an essential business We spoke to council people and were able to get that status in DC and Louisiana. It wasn’t just given to us,” Dr. Chanda Macias, cannabis industry entrepreneur, tells AFN

Macias’ company operates branded dispensaries in DC, a grow operation called Ilera Holistic Healthcare and has a CBD line of products called Alfia. With her finger on so many different touchpoints in the industry, she’s able to get a sense of what’s happening nationwide. States with recreational programs are less likely to deem those businesses essential, she says, leaving medical patients as the sole source of income for many operators. This is true even for some of the most progressive cannabis areas in the country.

“In Denver, if you go into a dispensary, one side is the medical program and the other side is the recreational program. If you don’t have a medical card, then you won’t be served,” she says.

Like many other industries, however, some players in the cannabis industry will feel the financial impact of Covid-19. Some users, both recreational and medicinal alike, may deem the trip to the dispensary too risky leading to a drop in sales. And while many businesses (including churches) are taking advantage of the Payroll Protection Program in the CARES Act, cannabis businesses are excluded. Despite a wave of deregulation at the state level, cannabis remains a controlled substance at the federal level.

“Small cannabis businesses are not able to take advantage of federal loans and grants that have been made available to all other small businesses,” Macias says. “These and other laws have placed a tremendous amount of pressure on cannabis-based businesses and resulted in a large number of layoffs in the cannabis sector.” 

Legislators in Oregon and Colorado, two states with a previously thriving cannabis sector, are proposing legislation that would allow cannabis businesses to obtain pandemic-related financial support from federal sources. If the bill passes, it could provide the industry with a backdoor towards decriminalization at the federal level.

With increased legitimacy, however, comes increased scrutiny

The clandestine growing operations of yore allowed operators to do many things under the table and to avoid having to take the government’s two cents into account. One of the biggest trade-offs of going legal is accepting the red tape and the regulatory pressure that comes with it.

“It’s a unique set of circumstances because cannabis businesses are required to comply with all of the new laws and employment regulations coming into play but are not eligible for any of the support the CARES Act provides. It’s a double whammy,” Jonathan Vaught, co-founder and CEO of Front Range Biosciences, told AFN.

Through its Clean Stock program, Front Range Biosciences specializes in tissue culture propagation at industrial scale to ensure that it offers hemp and cannabis growers pest and disease-free stock. It also maintains a varietal development program to address some of growers’ biggest challenges like drought tolerance, pest tolerance, and overall hardiness.

Given its newfound stature, the industry is also feeling the pandemic’s impact on daily operations. Social distancing requirements, heightened sanitation protocols, and delays in logistics are impacting it the same way they’re impacting other segments of agriculture.

“We are starting to see disruption related to worker protection and safety. It’s hard in some industries to get PPE like masks. Social distancing guidelines can also make it more challenging to navigate the workday,” he explains. “We are also seeing basic nursery supply chain disruption in terms of receiving inputs and raw materials especially from overseas.

An e-commerce awakening that’s here to stay

Even for cannabis businesses that are deemed essential, keeping traffic coming through the door is a challenge. Finding a quick way to put your inventory online and to automate transactions offers hope. Although the recreational aspect of a dispensary may be required to close similar to a restaurant’s dining room, takeout and delivery remain attractive options.

“The number of dispensaries contacting us about our e-commerce platform has been massive,” Socrates Rosenfeld, co-founder and CEO of Jane Technologies, told AFN. “We have hundreds of dispensaries waiting to get on Jane because they realize it’s one way to keep the doors open. We are finding ourselves in a fortunate position and it’s on us to keep helping these small businesses so they can keep selling in an efficient way.

Operating across 31 states, Jane Technologies offers dispensaries and other cannabis retail segments an e-commerce platform that provides real-time inventory tracking as well as data-driven insights into consumer preferences. Jane also runs an aggregated online marketplace that helps consumers explore local cannabis offerings and discover new products.

Jane’s current sales figures paint a rosy (and quite hazy) picture of how much cannabis is still being consumed during the pandemic.

“Average store revenue is still up somewhere as high as 130% on a per-store basis relative to what we were seeing in January. The low side is 52%. Online ordering has increased 140% relative to prior months with the onset of curbside pickup,” Rosenfeld explains. “The Wednesday after the government released the stimulus check, we saw a 50% increase in sales compared to the four previous Wednesdays. And on April 20, the industry’s biggest holiday, we saw total sales increased 68% compared to last year but the biggest and most exciting thing, in my opinion, is that online sales on 4/20 grew 216% compared to last year while offline only grew 18%.”

This new wave of e-commerce in the industry will likely have permanent staying power, Rosenfeld explains. Once a company goes through the process of getting its inventory online and adopting new e-commerce services, there’d be little reason to go completely analog again once the pandemic is over. Although regulations allowing temporary curbside pickup may dissolve when the pandemic subsides, consumers’ demand for more convenient ways to shop for cannabis products won’t.

With so many consumers captive in their homes for over a month now, there’s a real possibility that some may find themselves curious about cannabis for the first time. Whether motivated by anxiety about the global state of affairs, depression due to isolation or personal loss, or simply soul-crushing boredom, cannabis presents itself as a potential escape.

“People are finding themselves in a safe place surrounded by safe people and it’s a product that has historically helped lessen anxiety, worry, stress. Some people may be struggling to find their usual medications or prescription drugs and wondering if there is something else that can help them. Given all the negativity around what the pandemic is causing, the silver lining for this industry is that we are in a position to help people during this time.” 

And, as Vaught and Rosenfeld point out, cannabis products are probably recession-proof like alcohol. In times of economic or personal strife, the temporary relief that an altered state of mind provides is often deemed a more worthy recipient of spending dollars than other goods.

“Cannabis is a very large tax driver for states in a time when states need tax revenue. If you look at how prohibition ended after the Great Depression, alcohol was a major driver in helping the country get back on its feet from an economic standpoint,” Rosenfeld says. “There’s no reason cannabis can’t help do something similar for this generation.”

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