As COVID-19 spread across the country in March, the pending stay-at-home order led to long lines at Denver dispensaries. Mayor Michael Hancock quickly reversed course and deemed cannabis retailers essential businesses to keep them open and avoid the crowds. It was an early sign that the restrictions and the economic impact of the pandemic weren't going to hinder the industry and might even spur higher-than-normal sales.
Roy Bingham, co-founder and CEO of Boulder, Colorado-based BDSA (formerly BDS Analytics), says that the prospect of weeks of home confinement proved a major catalyst as the pandemic took hold in the U.S. "March 13 was a record sales sale nationally, higher than 4/20 in 2019," says Bingham. "It was a huge sales day, and that continued for about three or four days in most states based on the stay-at-home timing. Around March 23, we saw a gradual decline in sales to below-average days. The initial pickup was still more than the gradual decline of the last seven or eight days of the month."
There was a subsequent uptick around April 20 for the annual 4/20 celebrations, but they were a bit muted based on the stay-at-home situation. "They picked up on April 15, which was actually the first day that government stimulus checks came out, and then did fairly well through the 4/20 weekend but not as well as last year," says Bingham. "Then there was a continuation of the pattern with the normal weekly high sales on Friday and Saturday not really happening anymore, because Friday and Saturday are no different than any other day of the week, I suppose, to a lot of people."
But each market has had its own wrinkles. "The timing at shelter-at-home has been different in different states, and that is of course a big trigger," says Bingham, noting that Massachusetts was the only state that saw closure of dispensaries during the shutdown. "Every other state has said that both adult-use and medical dispensaries were essential services."
The topline number in Oregon has a big asterisk. "Oregon is a surprising number, because it is a mature market, but the state in March of last year had some supply chain problems and regulatory challenges," says Bingham. "More of it has to do with March of last year being a low number."
California and Colorado are largely on track with pre-pandemic forecasts, if not a bit higher.
Bingham notes that tourism, or the lack thereof, has been a factor in one state. "Nevada actually saw a decline in sales in March. Every other state saw growth in sales in March compared to the March of the previous year. As you would expect, Nevada is highly dependent on Las Vegas and Reno traffic, and that was beginning to slow down in the middle of March and then slow down quite quickly after that."
Other markets were up "very significantly," he adds. "California was up 11 percent; Colorado 15 percent, which is faster than we grew last year; Oregon was up 31 percent -- which, for a mature market, is pretty amazing growth -- and Arizona was up 42 percent. Maryland of course is a new market, up 82 percent. . . . It's a continuation of the growth trends those states were seeing anyway, then add to that the stocking up that was taking place in March."
While it's premature to compare April 2020 to April 2019, Bingham says sales are likely going to come in at or below the March totals. "4/20, typically what it does is it bunches sales around three or four days when a lot of dispensaries do discounts and promotions, but it doesn't actually raise the overall sales for April materially," he explains. "April is never actually a brilliant month in this industry. It's funny, people think April is a big month, but the big pickup annually is actually in March, then April is actually about the same as March or slightly below March."
Bingham says the big question is about how the looming recession will affect cannabis sales in coming months, projecting some resiliency. "They're certainly not likely to be as volatile as most other consumer packaged goods," he says. "When people start feeling the pinch, they stop buying certain things. We're constantly monitoring the data, taking to dispensaries and consumers and surveying to understand, if you only have a certain amount of money in your bank account, how much you're going to dedicate to cannabis. For some people, it is an essential, it's how they manage their pain or other serious medical conditions. For other people, it's a luxury item."
The stimulus money has helped buoy sales, he adds, but the future is murky. "The question is: What happens in the longer term?"
COVID-19 has already impacted the industry in multiple ways from an operational standpoint. Bingham points to the changing customer behavior dampening in-store promotions. "Certainly brands and dispensaries have done less promotional work. Dispensaries didn't want to have problems with social distancing and lots of people gathering over 4/20 weekend, for example, so they weren't really promoting in the same way and that seems to be ongoing. People of course are ordering online and getting delivery or picking up, and not as many people are spending time in the dispensary where they might be attracted to a new promotional item or something like that."
The end result is a plus for established brands and a negative for upstarts.
The emphasis on social distancing has accelerated some other changes, including delivery of medical cannabis in Colorado. "That's a material change," says Bingham. "It's the state easing restrictions, then it's up to the individual municipalities to decide how to allow that to be implemented. . . . There's also been drive-up, or pickup at the window, or curbside pickup, which is a new development in Colorado as well. That has been pretty popular. It's been fairly difficult for dispensaries to manage that change. In some cases, they've had to do structural change to the building and certainly a lot of change to the way the budtenders operate."
It will be hard to put these genies back in their bottles, he adds. "I think, once established, that will continue in most cases and become more popular."
One mounting industry challenge has only been exacerbated by the pandemic: raising capital. "Many companies in the industry that are not yet profitable were expecting to raise capital and have found it very difficult to raise capital and very expensive, so many have had to make cuts or change their business strategies due to a shortage of capital over this period of time. COVID-19 has just made that worse," notes Bingham. "Essentially, private equity and other investors just stopped investing. That impacts a significant number of brands in the industry and the multi-state dispensary operators. That basically means they've had to focus on their core. I'm sure many are not doing any research and development, they're cutting their marketing budgets, they're really trying to be cash-flow positive with the existing product offerings."
The trend will likely lead to a spike in mergers and acquisitions, he adds. "Consolidation of course was already happening, but this will accelerate that consolidation. There are some companies that have been doing well both in terms of growth and in terms of cash flow, and they're in a very strong position now to put the pedal to the metal."