The Canadian cannabis industry had a terrible 2019 where most cannabis operators burnt significant investor wealth. Over the past few weeks, the coronavirus outbreak has affected markets and cannabis stocks have not been spared either. Although the impact the pandemic might have on revenues of cannabis operators is debatable for some it might have been a little too late as they were already running out of cash.
Coronavirus affecting the supply chain and cannabis trade shows
The coronavirus outbreak has disrupted the supply chain in the cannabis industry. Although cannabis is thought in terms of growing and processing in Canada several moving parts of the supply chain come from China which has been most hit by the virus. For instance, vaporizers come from China because of the low cost of production. For a company such as KushCo Holdings (OTCMKTS:KSHB), its revenues could be hit because it depends on vaporizer sales for a large percentage of its revenue.
Similarly there outbreak has resulted in the cancellation of various events and this includes cannabis trade shows that were expected to take place in Canada and abroad in the coming months. The cannabis trade shows are important for companies to showcase their latest products as well as for networking. For instance, Aurora Cannabis (NYSE:ACB) currently needs a brand-name partnership and a massive push for the launch of vapes and edibles to help minimize the operating losses the company has been reporting.
Cannabis demand surge in Ontario and Alberta
However, amid this crisis cannabis retail stores in Alberta and Ontario have reported extraordinary demand for cannabis products as the impact of COVID-19 worsens. Company executives indicate that they have already put measures in place for their employees and customers thus there will be minimal impact on supply chains in Canada.
According to Inner Spirit Holdings (OTCMKTS:INSHF) CEO Darren Bondar their 46 retail stores experienced exceptional demand over the weekend. Bondar indicated that sales were up 20% and there was a record number of clients served. The company is now encouraging consumers to order through click-and-collect programs in Ontario, British Columbia, and Alberta. Ontario’s monopoly online store reported a surge in sales over the past week although some of the demand is attributed to lower prices.
Cannabis companies change tactic
The struggles the cannabis operators have been experiencing have pushed them to diversify and rethink their strategies. Companies are looking to grow their product in warmer climates thus overcoming the challenge of limited outdoor growing during winter. For instance, Aphria Inc. (NYSE:APHA) has been expanding to warmer climates in Latin America through the acquisition of LATAM Holdings. In fiscal 2019 the company earned CA$4 million from Latin America activities.
Others such as Hexo Corp (NYSE:HEXO) have decided to concentrate on the domestic market. In October last year, Hexo stated that it will offer competitive prices for its products to undercut the black market. The company launched a new brand called “Original Stash” which will be affordable at a price lower than even the black market prices.