Will the Coronavirus Scare Cripple the Cannabis Industry?
The coronavirus has the potential to do a lot more damage to the cannabis industry than just a slowdown in Chinese vape cartridges and plastic packaging coming over from Asian countries, it could put a hammer down on the already struggling finance and debt market that the current cannabis industry is struggling with right now.
Huh? I thought cannabis is good to help viruses, including the coronavirus?
As we mentioned two weeks ago on In the Weeds with Jimmy Young, our biggest concern in the cannabis industry is the lack of funding in the cannabis industry right now. It is dire. Companies that touch the flower are laying off hundreds of people, companies that are in the media or ancillary space are laying off hundreds of people that had taken the career chance of leaving a non-cannabis job to enter the cannabis space. Programmers, HR people, CPAs, real jobs, real people, real layoffs. The concern was that if the cannabis market’s access to funds is tight right now and you can’t find loans and cash anywhere in the market, what happens if the general market overall takes a big dip, or we enter a full fledge recession? A rising tide raises all ships as they say on Wall Street, but a lowering tide exposes who has swim trunks on as well.
Enter the coronavirus scare, while it appears to be a serious viral flu strain, it does not appear to be a zombie apocalypse or bubonic plague-type situation. One thing has created is fear and nervousness in the market. The stock market has dropped over 2,200 points on fears regarding the coronavirus. This is important to the cannabis market because things were already tight in the public markets for cannabis company getting funds in order to survive the next 12 months, now throw in a down market and a nervous investor profile, and we could have some real problems ahead for cannabis.
Does MedMen survive if we have another 2,000-point downturn in the Dow Jones and their stock hits $0.15?
Do you think High Times, who recently got approval from FINRA for an OTC stock symbol and listing, wants to go public in this market? Can they afford to hold off and wait for a better market environment or do they just have to go and get those public funds into the company no matter what the market is doing?
Weedmaps and Leafly have recently laid off 20% of their workforce and EAZE was headed for a brutal end before recently getting a $35mil lifeline funding round and future credit source from previous investors that have already invested in the company.
Massroots, having burned through $20mil and having their stock back around $0.003, has their website down again. After having it down for 9 weeks over the Fall, will it come back up this time?
Civilized had to pay someone to take their company and debt, has stopped publishing content and is seeing their ranking and traffic plummet.
All these events happened during the roaring bull market of the past 12 months that saw the Dow Jones rise to almost 30,000. Interests rates are at all-time lows for mortgages, home equity loans, and car loans, so money has never been easier to get, and the cannabis market was already floundering for cash and credit lines during this period.
We stand by our line to Bruce Linton in our interview on In the Weeds, the downfall of the public cannabis industry, or the bubble started to pop, when he was fired from Canopy Growth. The first question we asked Bruce as whether he caused the cannabis stock market crash by being fired from Canopy Growth. We all should have seen the writing on the wall at that moment. That was the canary in the coalmine for the cananbis public stock markets.
Fork in the Road
Will the coronavirus wipe up out legal cannabis forever? No way, too much money, to much tax revenue, and this is just a virulent flu strain making its’ way around the world. If you are over 75 or under 2 years old, you should be worried. If you are a healthy adult with a healthy lung and respiratory system, you should be fine, even if you become effected. A recent Wall Street Journal article pointed out that there are probably hundreds or thousands of people in the US with the virus based on our transportation systems and borders, it is just that the symptoms in most people are so mild they don’t know they have it. This is very similar to an influenza virus (thought not exactly the same virus) that is nasty, but cannabis and the world will survive.
The two scenarios that make the most sense are that in one case, the virus rips through North America and Europe for a good 8 to 12 weeks as “everyone” gets it, the markets sink for a few months as GDP and production drops for companies, and then recovers as the virus finishes it run through humanity and everyone gets back to work and shopping again. Heat and Summer months are actually good for getting throught the virus quicker according to professionals.
The second scenario is that the virus weights on the market and the world for closer to a year, and this creates an environment where investors in risky or alternative assets don’t feel so brave and decide to sit on their hands and wait it out. This would be very bad news for fringe investments like cannabis, crypto, and esports. The first thing investors cut out when they don’t feel very confident is to stop speculative investing and stick with the safer investments.
Do you want to own new High Times stock when their main source of revenue is Cannabis Cup shows around the world that no one wants to attend or travel due to the virus circulating around the world?
Since most health insurance does not cover medical marijuana in America, in a recession, will out-of-pocket expenses for marijuana get cut out of the budget, like high end wine during the last recession?
These are questions the cannabis industry needs to own up to if things get worse with the coronavirus and we enter a full-fledged worldwide recession. Funding and credit is ugly and bad right now, if the market tanks, that will only get worse, so you better figure out a way to keep the lights on and your company operations going while there is almost no access to public and private funds.
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