California Marijuana Notebook: Despite media reports, it’s not ‘boom times’ for everyone in state’s cannabis industry

(This story has been updated to clarify that Flow Kana’s Michael Wheeler was citing industry data from BDS Analytics and to correct a statement that spring layoffs at Flow Kana were not related to the coronavirus.)

(This is a regular column that delves into the complicated issues surrounding California’s immense cannabis market from the vantage point of Marijuana Business Daily Senior Reporter John Schroyer. Based in Sacramento, he’s written about the cannabis industry since joining MJBizDaily in 2014.)

Over the past month, a slew of media stories focused on the sales spike the marijuana industry experienced in mid-March as the coronavirus crisis took hold across the U.S. and panic buying skyrocketed.

That translated to news coverage suggesting it’s a great time to be in the cannabis industry.

One instance was a Los Angeles Times report with the headline: “Boom times for cannabis businesses as Californians, in a pandemic fog, isolate indoors.”

But the narrative that life is grand for everyone in the California marijuana industry amid the coronavirus outbreak is untrue, according to multiple cannabis executives in the state.

While some companies have thrived during the crisis – ranging from marijuana delivery operators to some large-scale growers and brands – many are still reeling from years of high taxes and costly regulations, along with a widespread retreat of investor capital.

Sales declined steadily across the state’s legal market since March 22, according to data compiled by Colorado-based BDS Analytics, said Michael Wheeler, the company’s vice president of policy initiatives.

Easter weekend for the industry – the holiday was April 12 – was a particularly savage hit, with sales down 35% compared to the same weekends over the past three years, Wheeler said, citing industry data from BDS.

Flow Kana recently had more layoffs, following a November round, on March 13, March 30 and April 30 that cut a total of 28 jobs, a company spokesperson confirmed to Marijuana Business Daily.

That leaves Flow Kana with 170 employees.

The recent layoffs are a direct result of the coronavirus, which has forced the company to constantly reevaluate its financial position, the spokesperson said.

Through the first half of the month, April 2020 adult-use cannabis sales in California are up 17% compared to the first half of April 2019, according to MJBizDaily analysis of point-of-sale data provided by Seattle-based Headset.

While sales in the first half of April are up on a year-over-year basis, the growth is substantially less than what the state experienced before COVID-19 hit. Sales in January and February of 2020 grew by an average of 75% over the same months in 2019.

The narrative that the industry is rolling in money since the onset of the coronavirus crisis – in part because marijuana companies have been deemed “essential” during the pandemic – has hampered not only political progress but even become a barrier in business negotiations.

“We were seeking to negotiate with a landlord down in Los Angeles on our rental agreement, saying, ‘Times are tough, extenuating circumstances, can we catch a break for a few months or tack it on to the end?’” Wheeler said of a conversation he had just after April 20.

“‘No, no, I saw a story that said you guys are filthy rich. There’s no flexibility for cannabis companies. I need my full rent,’” came the reply, Wheeler said. “That’s a real-life story, and it’s not something we had any defense against when the story in the L.A. Times said ‘boom times.’”

Delivery doing the best

Retailers with delivery licenses seem to have fared the best of any California cannabis business, with multiple companies telling MJBizDaily they’ve been on hiring sprees and expanding their delivery fleets to keep up with demand.

Airfield Supply Co., a retailer in San Jose, said its delivery sales jumped from typically about 5% of sales to now around 25%.

The company also increased its delivery fleet from four vehicles to 11 – and that’s likely to increase even more, said Chris Lane, the company’s chief marketing officer. He added the company has nearly tripled its delivery driver staff to about 30.

“We’re seeing a massive skyrocketing on delivery,” Lane said. “We’re bringing on delivery vehicles as fast as we can to support (demand).”

But, he noted: “It would be very hard to say that coronavirus has been beneficial in any way.”

Lane noted that customer foot traffic is down at the company’s San Jose retail shop, in part because of mandatory social distancing.

Airfield doesn’t have the logistical capabilities at its store to process the roughly 1,500 customers per day it was averaging before the coronavirus hit, Lane said.

That also means many customers have shifted purchasing methods to delivery, Lane said, and that isn’t really an indicator of new consumers or a boost in spending on marijuana products.

No ongoing sales bump for many retailers

In Los Angeles, longtime retailer Virgil Grant – who runs three licensed stores around the city – said sales have been down in recent weeks by about 35%, and he’s working to get a delivery wing up and running. But he estimated that’s going to cost at least $50,000.

“That’s not to make money. That’s just to get delivery set up,” Grant said. “If I get cars on the road, I’ll have to get insurance for them. It’s not as simple as people think.”

Grant said his shops did benefit from the March sales bump, but only for a week or two. Toward the end of March, sales “just kind of dropped, and it’s slowly dropped more and more,” he said.

“I haven’t had any of my colleagues call me up and say, ‘It’s booming over here. How you doing?’” Grant said. “When they said ‘boom times,’ I’d think we’d be having lines wrapped around the corner.”

For the L.A.-based Shryne Group – one of the largest vertically integrated marijuana companies in California – business is mostly back to a semblance of normality after the March sales spike, said Daniel Yi, the company’s chief communications and strategy officer.

But the virus has brought a halt to construction on a cannabis shop in San Francisco’s Union Square that the Shryne Group had previously planned to open the week of April 20.

Now, the opening of that shop is completely up in the air and dependent on whenever construction workers can resume work, Yi said.

“When we put our contractor back in there, we’re still talking like six weeks” until the job is finished, Yi said. “God knows if by the end of May we’ll be able to have any kind of grand opening.”

Ripple effects

Even in the Emerald Triangle in Northern California, where rural cannabis farms are largely isolated from the possibility of contagion, ripple effects are starting to occur, said Kristin Nevedal, the Humboldt County-based executive director of the International Cannabis Farmers Association.

A lot of service companies that work hand-in-hand with cultivators – including licensed manufacturers and extractors – have suspended noncore operations, laid off employees or even closed down entirely, Nevedal said, though she declined to identify any by name. 

Cannabis farmers themselves are starting to worry about hiring for both the planting and harvesting seasons later this year, because labor is apparently already scarce, with many workers choosing to remain at home because of the coronavirus.

Nevedal pointed to the preexisting near-crisis situation California’s legal marijuana industry was facing before the coronavirus hit and said that, from a macro level, the virus isn’t helping the industry. It’s just hurting it less than some other industries.

“Sales haven’t ever fully recovered from 2017,” she said, referring to the final year of the medical gray market in California before the new regulated market launched in 2018.

“We already had a really struggling market, and this (virus) just hits the scales so hard.”

John Schroyer can be reached at [email protected]

(Click here to read the previous installment of this ongoing column.)

For more of Marijuana Business Daily’s ongoing coverage of the coronavirus pandemic and its effects on the cannabis industry, click here.

2 comments on “California Marijuana Notebook: Despite media reports, it’s not ‘boom times’ for everyone in state’s cannabis industry
  1. Jonathan Chaffin on

    So Flowkana’s sales numbers and a couple of anecdotes are to be taken as a proxy for the industry in California overall?

    Reply

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