Another 2020 Rollercoaster: The Marijuana Industry
The United States marijuana industry has been forced to overcome a series of highs and lows this year just like practically every other major industry. The variety in circumstances has made predicting marijuana stock outcomes increasingly difficult this year. From forest fires, the COVID-19 pandemic, to new legalizations, here is a 2020 industry re-cap.
Top investors in the marijuana industry had a particularly difficult year in 2019 and hoped brighter days were on the horizon in 2020. With the growing popularity of the plant, experts predicted that 283,422 jobs and 8.7 billion in retail sales would be created from legalization efforts in 2020. The first major curveball thrown their way was of course, the pandemic. Although dispensaries for both medical and recreational use were deemed essential by the government and permitted to keep their doors open and lights on, this did little to help the industry expand as much as was anticipated. In addition to COVID-19, the marijuana industry was set to face yet another set back with their supply chain.
About 58% of the nation's legal cannabis is grown in California, amounting to roughly 17.3 million pounds per year. From this, 12.7 million pounds are exported throughout the nation to supply medical and recreational dispensaries. The most coveted plants are grown in The Emerald Triangle found in Northern California. Its rich soil and Mediterranean climate create ideal conditions for the plant to grow in abundance. This summer, however, the future supply of cannabis was threatened when wildfires ravaged much of California.
8,100 wildfires have devastated 3.7 million acres of land in California since the start of 2020. Small and family-run cannabis operations have been especially impacted by the fires. Keala Peterson, a small cannabis business owner in California, spoke about the disproportionate impacts of the wildfires on family owned cannabis operations because of their inability to afford insurance for all their crops. Her Sonoma County location lost around 4/5th of their marijuana crops due to the fires. Total industry losses due to fires are estimated to be hundreds of millions of dollars and no California producers are safe. Even those not directly impacted by the fires may feel the heat as they suffer smoke damage to their product. The question now is when will the general public notice price changes in the market due to these fires?
“ many of the largest fire complexes were either not contained at all or only slightly contained… a situation that exposes cannabis farmers to significant financial losses because the outdoor crops aren’t necessarily insured” - Keala Peterson, small business owner
“ It's possible this won't affect the supply chain until later in the fall. There has definitely been an effect on crops that are benign harvested now. It may end up driving the price of flowers up, but we won't really know until January or February if it had an effect. “ - George Sadler, President of Platinum Vape
The process of growing, harvesting, exporting, and distributing cannabis takes several months so the impacts of fire and smoke damage on the industry may be delayed. Although it seems that this year has been consistently serving bad luck, wildfires are not just a product of the “2020 curse”. California has been dealing with wildfires for many years and the severity of damage is expected to stay on the rise. George Sadler of Platinum Vape predicts that climate change will continue to negatively impact the industry. He stated, “Climate change definitely will have an effect on the industry more inland, where we’re seeing fires more commonly – it could be pretty dramatic.” Other prominent figures in the business, however, have claimed these have always been threats to the industry and have already implemented measures to combat them. Harry Kazazian, CEO of 22Red, for example, claimed that wildfires are something that need to be adapted to while conducting business in California. One of Kazazian's efforts to reduce his risks included moving his planting operations indoors in an effort to evade wildfires.
Although the cannabis industry has faced a great deal of adversity this year, there has been a recent wave of good news. While Americans (not so patiently) waited several days for presidential election results, there was another question of interest on the ballot, the legalization of recreational cannabis. Arizona, Montana, New Jersey, and South Dakota legalized recreational marijuana use while Mississippi legalized medical usage of the plant. While most people were shocked by such a large wave of legalizations, trends have been showing us this shift for years.
Robert A. Mikos, author of Marijuana Law, Policy and Authority illustrates the growing trends of marijuana reform in the states since the 1990s. As you can see in the figure below, medicinal marijuana has been steadily on the rise since the early 2000s whereas recreational cannabis hit the scene in 2012. This recent win can mean a lot for the future of the budding cannabis industry. (Mikos, 2016)
The legalization of recreational marijuana is sure to positively impact the underperforming marijuana market. To better view these trends, here are some of the biggest marijuana stocks to watch. First, Canopy Growth Corporation (CGC) started out 2020 with stock prices around $20.13. Through the tumultuous first wave of coronavirus, the stocks plummeted in mid-March along with the rest of the market. Prices remained in the mid teens until news that the legalization of recreational use was said to be put on the ballot. The stock climbed through October and now, in mid-November, the stock is sitting at round $23.72. Overall, CGC experienced a 17.83% increase in stock price so far this year.
Another stock to watch is Cronos Group Inc. (CRON). This stock has also had a turbulent year but unfortunately has not yet surpassed its starting year price. In early January CRON was trading at $7.36 and is currently trading at $7.22. This stock, similarly to CGC, had not started experiencing significant positive growth until early October in anticipation of the legalization vote. CRON is still hoping for some more growth as it is currently looking at a -1.9% decrease in stock price so far this year.
The reality is that the industry has been unable to promote robust growth in the face of adversity this year, but may be able to realize some significant growth in coming years. With the influx of states legalizing recreational marijuana, the industry has new locations to grow and develop in. The industry was able to maintain some sense of overall stability thus far this year, but there are still several hurdles to overcome. We are yet to see the impact of the California wildfires in the market and it will be interesting to see this coupled with the recreational legalization in several states.
Bibliography
Hudock, C. (2019). U.S. Cannabis Cultivation in California. Retrieved November 25, 2020, from https://newfrontierdata.com/cannabis-insights/u-s-cannabis-cultivation-in-california/
Luscombe, R. (2020, November 14). How marijuana legalization made strides across the US in this election. Retrieved November 25, 2020, from http://www.theguardian.com/us-news/2020/nov/14/marijuana-legalization-us-elections-2020
Mikos, R. A. (2017). Marijuana law, policy, and authority. New York, New York: Wolters Kluwer.
Yahoo, F. (2020, November 25). Canopy Growth Corporation (CGC) Interactive Stock Chart. Retrieved November 25, 2020, from https://finance.yahoo.com/quote/CGC/chart/
Yahoo, F. (2020, November 25). Cronos Group Inc. Common Share (CRON) Interactive Stock Chart. Retrieved November 25, 2020, from https://finance.yahoo.com/quote/CRON/chart/
Edited by: Sean Francis
