Jars of marijuana are seen on display at Montana Advanced Caregivers, a medical marijuana dispensary, Nov. 11, 2020, in Billings, Mont. Recreational marijuana initiatives passed in four states this year, from liberal New Jersey to conservative Montana and South Dakota. Advocates' next goal is to get marijuana removed from a federal list of illegal drugs with no accepted medical use and high potential for abuse. (AP Photo/Matthew Brown)
December 29, 2020
Even before the coronavirus pandemic defined the year, and perhaps a generation, 2020 was slated to be a time of reckoning for the cannabis industry. Humbled by an ongoing market correction and subsequent cash crunch, many cannabis companies faced a tough year ahead — even without a global pandemic to contend with.
Throughout the terrible lows of 2020, though, there were unexpected flickers of optimism. As this infamous year winds to a close, the industry will head into 2021 propelled by titanic shifts in the perception of cannabis in the U.S. and unprecedented political tailwinds.
“When you talk about [cannabis] shifting from this illegal world that it lived in to an essential business — where you have schools and churches closed, but your dispensary is open — is certainly a big shift in the United States,” Joe Caltabiano, co-founder and former president of Cresco Labs, said in an October interview.
Even before the coronavirus pandemic hit the U.S. full force in mid-March, cannabis companies could already feel foreshocks of the earth-shaking pandemic to come. Companies doing business in China, like vape, equipment, and specialty packaging manufacturers, were hit by demand-based price hikes on raw materials and delays due to factory closures, worker shortages, and transportation restrictions. These new hardships only compound difficulties for the cannabis sector.
“First, it was the tariffs in China, followed by the general cannabis collapse…and then followed up by the vape crisis that happened last September, and now we've got the coronavirus. So it's literally one thing after the other," Nick Kovacevich, CEO and founder of KushCo Holdings, said in an interview at the time.
ESSENTIAL BUSINESSES ONLY
No one could have anticipated the disruptions to come. Pandemic-related lockdowns kicked off in many cities and states in mid-March. People rushed to stock up on essentials for the quarantine — and cannabis was no exception.
Cannabis analytics company Headset noted surges in markets hit by the pandemic and subsequent lockdowns. In Washington state, for example, cannabis sales surged between 14 percent and 33 percent shortly after Gov. Jay Inslee banned gatherings of more than 250 and just before he shut down restaurants and bars. Meanwhile, the day before shelter-in-place orders hit seven Bay Area counties, California sales surged 56 percent as panicked shoppers rushed to dispensaries.
The concern didn’t last long.
Hours after the shelter-in-place order went into effect in the Bay Area, closing down local dispensaries, San Francisco’s Department of Public Health declared cannabis “an essential medicine,” meaning cannabis businesses could continue to operate in the lockdown. Mayor London Breed endorsed the decision, and eventually California Governor Gavin Newsom followed suit. Authorities in most states with legalized marijuana made similar distinctions for both adult-use cannabis and medical, with Massachusetts’ adult-use cannabis market a notable exception.
Many in the industry took the occasion to celebrate the decision as an endorsement of the legitimacy of the industry. Looking back, many still think of the essential designation as a turning point for cannabis stock recovery and for reducing stigma around the industry.
“Cannabis was deemed essential in over 20 states in the United States. And that's the first time that cannabis was ever deemed essential, along with hospitals and grocery stores and gas stations,” said Jessica Gonzalez, cannabis and intellectual property attorney at Bressler Amery & Ross. “I think that what it shows is, there's really a change of attitude of what [cannabis] actually is — that it's no longer this really kind of scary ‘Devil's Lettuce,’ but that it is a medicine and it is recession proof.”
But even the essential designation wasn’t enough to shield companies from the negative impacts of the pandemic. According to a report from cannabis staffing platform Vangst, nearly all vertically-integrated cannabis companies surveyed had planned to hire in 2020, but instead nearly half laid off employees within the first month or so after pandemic-related lockdowns.
Still, the consumer appetite for cannabis held strong. Customers in more mature cannabis markets like California, Colorado, Nevada, and Washington cut down on the frequency of visits to cannabis dispensaries and retail shops, but purchased more when they did, according to Marijuana Business Daily. Sales spiked again in the week leading up to cannabis holiday 420, typically the biggest day of the year for cannabis sales, when stimulus checks went out, according to Headset.
DESPERATION BREEDS INNOVATION
Eager to adapt to the needs of their customers, cannabis businesses quickly went digital, seeking out new ways to offer services most other industries already do. Ecommerce, contactless payments, delivery — the pandemic accelerated the kind of innovation that could have otherwise taken years. Cannabis online marketplace Dutchie, for example, added an additional 450 retail shops or dispensaries to its customer base just within the two months after the onset of the pandemic.
“I think [the pandemic] advanced cannabis companies five years as it relates to technology,” Caltabiano said.
With summer came political unrest and a worldwide reckoning with systemic racism in the aftermath of the deaths of George Floyd, Breonna Taylor, and many other unarmed and innocent Black Americans. Conversations about drug reform and the disproportionate impact cannabis criminalization has had on communities of color were top of mind, and it soon became clear politicians wouldn’t readily forget cannabis as the contentious 2020 election drew nearer.
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POLITICIANS PRIORITIZE CANNABIS
Accusations flew that House Democrats were prioritizing cannabis reform over coronavirus relief after they added the Secure and Fair Enforcement (SAFE) Banking bill to the $3 trillion HEROES Act. That rhetoric stuck, when House Democrats attempted to schedule a vote on Sen. Kamala Harris’ (D-Calif.) sweeping cannabis and criminal justice reform bill, the Marijuana Opportunity Reinvestment and Expungement (MORE) Act, before the 2020 election. The bill would ultimately pass, but not until December, after House Democrats postponed the vote out of fear it could harm more moderate Democrats facing tough reelection battles, according to Politico.
Even as House Democrats pushed forward on cannabis, the party would soon choose a candidate comparatively much more conservative on the issue to face off against President Donald Trump. President-elect Joe Biden was the most conservative on cannabis among the candidates running for the Democratic presidential nomination. His policy, which the Democratic Party mirrored, included rescheduling cannabis into the Controlled Substances Act — not descheduling it — supporting medical cannabis legalization, allowing states to create their own policies on adult-use cannabis, and automatically expunging use-related convictions.
The cannabis industry worried a Biden presidency wouldn’t provide the watershed moment they’d hoped a Democratic president would. But Biden’s choice of now Vice President-Elect Kamala Harris as his running mate in advance of the November election proved a beacon of cautious hope for the industry. In spite of a law enforcement past that worried many cannabis industry advocates, Harris has positioned herself as something of a cannabis social justice champion since she joined the Senate, supporting several cannabis-related bills, including the MORE Act.
“We don't think that he's going to be super progressive in terms of, you know, pushing for a full descheduling of cannabis. But clearly, his administration has shown an openness to progress. And that really even started before he selected VP-elect Harris for the ticket, where he did sign kind of a unified agreement with Bernie Sanders that did include the decriminalization of cannabis,” said Vivien Azer, managing director and Senior Research Analyst at Cowen.
CANNABIS SWEEPS A DIVISIVE ELECTION
The election on Nov. 3 ultimately came and passed. It wouldn’t be clear who won the presidency for some days, but one thing was certain: amid a highly divisive election season, voters came together on cannabis. Voters in all five states with cannabis-related initiatives on the ballot approved those measures by wide margins. It was a clean sweep for the industry and represented significant upside for U.S.-focused cannabis companies, especially those with operations in markets that will soon open to adult-use like New Jersey and Arizona.
Several of the states with cannabis on the ballot in November are traditionally conservative and tend to vote Republican, including South Dakota where voters approved both medical and adult-use cannabis. Dan Pabon, general counsel, and chief government affairs officer at Colorado cannabis company Schwazze, said the election results represented a “canary in the coal mine” as far as a trend toward broader, bipartisan acceptance of cannabis reform.
“The hope is that the senators or members of the House of Representatives see that the plan is a viable one for their state, and that, you know, they can then support that at a federal level," he said in an interview at the time.
A shift in favor of cannabis legalization would make those lawmakers more in sync with their constituents. According to Gallup, the number of adults in the U.S. who approve of cannabis legalization hit an all-time high of 68 percent in 2020. This includes significant support on both sides of the aisle, with support coming from nearly half of people who identify as Republican and conservative.
It's clear stigma is lifting worldwide, as well. Just days before the U.S. House of Representatives passed the MORE Act, the United Nations Commission on Narcotic Drugs acknowledged the medical utility of cannabis, by removing it from the most restrictive scheduling under the Single Convention on Narcotic Drugs.
In spite of shifting political trends, the fate of cannabis on the federal level still hangs in the balance. A Biden presidency won’t mean much for cannabis if the Senate is still under Republican control, especially with cannabis opponent Sen. Mitch McConnell as Majority Leader.
“If the Republicans maintain control of the Senate, the best that we think we can get is the SAFE Banking Act. And that really would only address access to commercial banking,” Cowen’s Azer said.
If Democrats win, however, it could kick off a flurry of mergers and acquisitions, according to Jason Wilson, a partner in ETF Managers Group’s Alternative Harvest ETF. And it won’t just be any M&A. Long gone are the land-grabbing, cash-flush days before the cannabis market rout. Companies now are much more intentional about their acquisitions.
“We started a few years back doing acquisitions for the wrong reasons, really going into these green meadow opportunities where they had a lot of cash available, and they're just trying to grab market share. They realized that that was the wrong approach,” Wilson said. “They've come to the realization that they have to run like any other CPG company. And they're focusing on synergistic acquisitions, to basically get their products into expanded marketplaces.”
Democrats haven't even won the runoff elections, and M&A in the cannabis space is already heating up.
Canadian cannabis giants Tilray and Aphria announced they plan to combine operations, creating the world’s largest company by revenue. The combined company, which will keep Tilray’s name, is on track to surpass industry leaders Canopy Growth and Curaleaf in size, according to Bloomberg.
Even if Democrats lose in Georgia, and the Senate continues to pose a stumbling block for federal cannabis reform, states have historically been the vanguard of legalization. And the economic destruction wrought by the pandemic only helps the cause of cannabis on the local level.
Leaders in states like New York and Pennsylvania are itching for a new source of tax revenue. With New Jersey's upcoming medical program just a stone’s throw away, experts like Gonzalez, who worked on NJCAN 2020, expect New Jersey to precipitate more adult-use legalization across the Northeast.
"New Jersey is really going to be that domino that once it falls, it's going to catalyze the Northeast," she said during a November interview. "New Jersey is right smack dab in the middle of some of the states with one, very high-density population, but we're also right across the river from the largest cannabis consumer market in the world, which is New York.”
With 2021 around the corner, the events of the past 12 months have demonstrated time and again how difficult it can be to predict events that might completely change an industry. But for once, the winds of political change seem to be blowing in the cannabis industry’s favor. And as 2020 draws to a close, the cannabis industry has once again proven itself more resilient than most, transforming from stigmatized to essential over the course of a turbulent 12 months.