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Global X - How The Cannabis Industry Is Coping In 2020

The Blue Water Team

This report by Global X highlights certain challenges presented by the COVID-19 pandemic that are affecting the performance of the cannabis industry, as well as trends that could help the industry thrive in the long-term.

The major challenge that businesses in the cannabis industry face right now is a lack of capital investments. Investors prefer more stable investments during times of economic volatility, such as that caused by the COVID-19 pandemic. Businesses without significant amounts of capital on hand are struggling, such as businesses like Canadian cannabis grower HEXO Corp., which recently had to sell equity at a 20 percent discount.  

However, according to Global X, businesses that can weather a short-term shortage of capital investments are likely to benefit from 3 major pandemic-influenced trends in the industry.

Governmental Need for Tax Revenue

As the economic downturn cuts into tax revenue, state and national governments may wish to tap the tax potential of the cannabis industry. 

States that have legalized cannabis are realizing large tax revenues. The state of Illinois, for example, collected at least $11 million in taxes from the industry in the first quarter of 2020, while Colorado collected $79 million in the same time period. 

The potential for even more tax revenue exists if legalization is more widely embraced, since less than 10 percent of global cannabis sales occur legally. National legalization of cannabis could lead to $132 billion in tax revenues, plus the creation of 1 million jobs. 

Increasing Demand

Despite the economic downturn, the growth trend in the cannabis industry that began before the pandemic has not only continued but increased. For example, between March 16 and March 22, 2020, YoY sales of recreational cannabis in the U.S. increased by 50 percent. 

Some of this growth is due to consumers treating cannabis like a staple and stocking up in the midst of economic uncertainty. However, other factors, like an increase in store openings in Canada and the United States, and a shift toward selling different forms of cannabis (like edibles) were driving growth before the pandemic and will likely drive growth after. 

Introduction of E-commerce

The final trend that should continue to drive the growth of the cannabis industry is the introduction of online purchases of cannabis products. Cannabis e-commerce has, in some cases (i.e. Colorado and Canada) been driven by the social distancing needs created by the pandemic. 

Together, these trends should enable continued growth among industry businesses that have the resources on hand to weather a decrease in capital investments during the pandemic.

Currently, there are a handful of cannabis ETFs in the market. Some of these ETFs include cannabis along with alcohol and tobacco, while others offer more of a pure play into the industry.