Let’s face it, 2020 is a year we’d all like to forget. It’s been a challenge for individuals and businesses alike. Within the cannabis industry, we were fortunate enough to be deemed essential during the Covid pandemic and allowed to continue operating, albeit under different working conditions. Yet, Mother Nature has a way of fracturing the thin layer of ice, which were only exacerbated by the previous restrictions the industry has levied upon it due to the federal government.
It’s no mystery that cannabis businesses have a hard time finding banking. Yet, it’s the lack of business and crop insurance offered to cannabis businesses that very well could result in the tens of millions of dollars of lost revenue that will never be recouped from the wildfires ravaging many states and the unprecedented snowstorm that struck Colorado. Simply put, the cannabis industry is out on a limb that can break at any moment due to conditions out of their control.
As we look back at the struggles of 2020 it all began with a virus particle the size of 120 nano-meters. For comparison, a sheet of paper is 100,000 nano-meters thick. This little particle has resulted in the US alone experiencing 40 million unemployed, 192,000 deaths, and the sharpest economic recessions ever recorded. And while we thought it couldn’t get worse, Mother Nature had something else in mind. Over the last 60 days alone more than 4 million acres have burned across the states of California, Oregon, Colorado and Washington. And with fires still raging in the west, Colorado got hit with a surprise left hook – an unprecedented snow storm that dumped upwards to a foot of snow that blanketed agricultural regions throughout the state. Data is still being collected, but it sounds like the losses from both the fires and snowstorm will be significant.
To better understand the impacts these losses could have on the industry, it’s important to understand the elements of the supply chain and how ultimately everything comes back to the plant. Every single product purchased at a dispensary originates from the plant and, in many states, shelf ready products depend on the outdoor season to provide a portion of the plant material used to produce the oil that goes into infused products.
So what does this mean for the farmers, extractors, product manufacturers, retailers and ultimately the consumers in the states most impacted by the wildfires and early snow? According to New Frontier Data, around 2.37 Million lbs of legal outdoor cannabis was grown in 2019 the majority of which is produced in Colorado, California, Oregon and Washington. These states are the geographic regions where outdoor cultivation is prevalent and the areas most affected by the wildfires and CO snowstorm. The downstream impacts to those markets could be significant.
First, consumers might have to kiss those $100 dispensary ounces goodbye. Not only are you going to see less flower supply in these state markets, which will result in higher wholesale prices that could trickle down to the consumer pricing, but it could also affect other products further down the supply chain. We’re already seeing a rush from dispensaries to try and lock up as much supply as possible to meet current demand needs as well as the coming months. Less outdoor plant material also means less feed stock for extracts and the packaged goods. This could result in production gaps which means retail shortfalls on supply or potentially higher prices for the feed-stock material and the consumer products.
You might ask, are there any positives? Well, those farmers fortunate enough to not have been impacted directly will be able to capitalize on the misfortune of their peers. Each state is it’s own micro-market and they experience large price swings relatively quickly as supply and demand shifts. So while some might see higher returns due to an under-supply, it seems as if the majority would much rather sacrifice the higher margin for the well-being and success of their friends and colleagues.
2020 go pound sand – we’re ready for a new year!
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