Why the business is uniquely well-positioned to survive, and possibly thrive, in an economic downturn.
As a venture capital investor, I’ll confess we’ve seen our fair share of unexpected triggers that cause a company to turn into a sales rocket ship. But the past few weeks have been unprecedented. In a bizarre turn of events across the country, as lockdowns and uncertainty spread alongside COVID-19, as businesses shuttered and stock markets panicked, one industry is booming—cannabis.
Sales have surged to new all-time highs, spiking nearly 160 percent in the weeks leading up to potential lockdowns and quarantines across legalized states. After months of what seemed to be perpetual negative news highlighting the marijuana public market plunge, could it be that cannabis is resurfacing while businesses around the U.S. are closing down?
Let’s break down the five trends we are seeing surrounding the plant, and why this industry may be uniquely positioned to succeed despite a general economic collapse.
1. Vices do well in a downturn
It doesn’t take a long walk through the past to see that vices and consumer staples, both of which arguably cannabis is, typically outperform or protect on the downside during a recession. There is a long history of alcohol as a parallel industry for cannabis and as having downside resistance during economic downturns. Whether it’s due to the need for entertainment, distraction, or anxiety release in humans under stress, historical trends seem to be on cannabis’s side.
2. Cannabis is a home-grown product
When news of the coronavirus hitting China began to surface, the early concern in the U.S. was not about our health, but the economic effect it would have on the supply chain of our largest industries, such as Apple, Microsoft, Walmart, and Big Pharma. Many companies and industries began to realize their reliance on Chinese manufacturing and raw materials as shocks to supply hit us and companies bottom lines. Not cannabis. Given the highly-regulated nature of cannabis and the fact you cannot import the product, the cannabis supply chain is largely domestic and has little to no exposure to China. That meant few, if any, shocks to its supply chain due to China’s shutdown.
Published: April 07, 2020