Marijuana and hemp companies of all stripes – from growers to retailers – are likely to join other global industries feeling the fallout from the coronavirus outbreak.
That’s largely because so much inexpensive cannabis hardware is made in China but also stems from the economic shock the virus is inflicting on the world economy, industry experts said.
The main question is how and to what extent cannabis businesses will feel the impacts.
There will be several, industry experts predicted, mostly caused by temporary shutdowns of Chinese manufacturing plants. On the flip side, U.S. companies might be able to step in and fill the void.
- Shortages of hardware manufactured in China, especially for cannabis vaporizers, as well as marijuana product packaging and specialty equipment for testing labs, extraction facilities and other businesses.
- Shortfalls of raw Chinese hemp material being exported to the U.S. and elsewhere.
- Financial ripple effects from the downturn in stock markets, further scaring off investors from cannabis.
“It’s a huge wake-up call,” said Nic Easley, CEO of Denver-based 3C Consulting. “It’s forcing companies to look at their supply chain. ‘Where do my products come from? Do I have multiple options for vendors?’
“Everyone was looking for the cheapest option forever, and that’s China.”
Will ‘hurt everyone’
While many companies haven’t yet felt the effects – and some might not at all, depending on their type of business and where they operate – the interconnectedness of the supply chain has Easley convinced that, eventually, nearly everyone in the industry will be affected in some way, all the way to cultivators and retailers.
“It’s going to hurt everyone, especially low-cost crappy vape companies, hardware companies, anyone who’s undercutting big brands, anyone who does their manufacturing (in China) – it’s going to hurt all of them,” Easley said.
“And with massive buildouts (underway) in Missouri, New Jersey, Illinois, Ohio, California, everyone needs the same equipment. Like ballasts for Gavita (grow lights).”
Easley said the manufacturing and processing spaces will likely get hit the hardest.
He noted that several of his clients already are in dire straits because their companies rely on Chinese-made goods that used to sell for 13 cents a unit but are now up to as much as 80 cents a unit.
“And it’s going to keep going up,” at least in the short term, Easley said.
Possible silver lining
But Easley and others, including the National Cannabis Industry Association, noted there could be a significant silver lining in the coronavirus for American companies: They might be able to step in and fill the gap left by Chinese companies, and that could solidify their industry footprint for a long time to come.
“If we start to see shortages or restrictions on imported manufactured products like vape cartridges or growing equipment, we can only hope that domestic manufacturers will step up and offer the most competitive prices possible,” NCIA Media Relations Director Morgan Fox wrote in an email to Marijuana Business Daily.
“This could benefit them in the long run as well by helping to solidify relationships with U.S. cannabis companies.”
Easley noted that there are still a lot of small- to-medium sized cannabis brands that could take advantage of the situation, particularly U.S. hemp producers.
“The biggest thing I see is finally a break for U.S. CBD companies and hemp companies to do something when they don’t have massive competition,” Easley said.
“It’s also a moment for smaller companies that have lost their market share to China to step up, ramp up and focus on relationships at all costs.
“Get new clients now and hold them and know that most of the public-market impacts, you’re not going to see that until the next quarter.”
Little fallout – yet
A number of attendees at the Emerald Conference in San Diego this week reported little to no impact from the coronavirus pandemic, but there was also some noticeable hedging.
Lanny Smith, a New Brunswick, New Jersey-based national sales manager for Vicam, which provides equipment for cannabis testing labs, said his company hasn’t felt a financial impact from the coronavirus yet.
But shipments out of China have been halted with no indication of when they might resume.
“They said it’s not a permanent thing, but who knows,” Smith added.
One piece of equipment his company can’t receive from China – a photochemical reactor – retails for $1,300, “so that’s a $1,300 piece we can’t sell,” he said.
Gerard Rosse, vice president of the North American branch for PIC Solution, said the chromatography equipment the company manufactures comes from France and not from Asia, so the coronavirus hasn’t slowed product coming in.
“But it could affect our ability to sell into China,” he added.
PIC Solution’s distribution workers in Shanghai cannot interact with the general public – or even leave the office – because of fears they will contract the virus.
The distributor for PIC’s equipment in China has been “shut down completely,” Rosse said.
John Schroyer can be reached at [email protected]
Bart Schaneman can be reached at [email protected]
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