What does a global recession mean for the cannabis industry?
COVID-19 is wreaking havoc on the global economy. And there are genuine concerns about a prolonged economic downturn, unlike any other in recent memory. People are worried about their health and for their families, as well as their businesses and jobs. The performance and survival of the cannabis industry is not even close to the top of the list of concerns for most Australians.
But for some, their health and wellbeing relies on them continuing to be able to access their cannabis medicines. And for others, their livelihoods depend on the industry. So what does this unfolding crisis mean for medical cannabis patients, doctors, workers and business owners?
In the short term, social distancing means that many people will become reluctant to visit a doctors office for non-urgent medical issues. Thankfully, many of the specialist cannabis clinics operate telehealth services. So patients who need a consultation, check-up, or a new prescription will continue to be able to do so remotely. Many pharmacies offer home delivery services, although for a fee, and we expect these services to be increasingly used by patients.
Once the economic downturn hits, and people’s capacity for discretionary spending decreases, the financial decision to pursue a legal medical cannabis prescription may become even more difficult. Depending on the depth and duration of the downturn, we may see more patients driven to lower cost medicines or the black market.
Depending on what happens to the cannabis product companies, patients may also find their medication discontinued as the manufacturer goes out of business. This would require a new SASB approval and prescription, and additional associated doctors fees.
For those working in the specialty clinics, it will likely be business as usual for a while. Although there may be an increase in patient care requirements as the virus spreads throughout the community. Most medical cannabis patients in Australia are 50+ years old and living with multiple chronic conditions, so particular care will need to be taken to reduce their risk of infection and ensure they take their medications safely.
For regular doctors, they will have even less time to consider medical cannabis as an option for their patients. Their focus and energy will be directed at other, more pressing matters. This may increase their likelihood to refer patients to specialty cannabis clinics, although that effect may be small due to the financial impacts on patients.
Cannabis product companies have been getting absolutely slammed long before this new crisis emerged. The bursting of the stock market bubble, and the subsequent credit crunch, has caused a swathe of job losses, asset sales, and financial distress for listed and private cannabis companies all around the world.
Many of the biggest and best known companies are now only months away from running out of cash. Their operating expenses generally outstrip revenues from product sales, and without the prospect of any new public market fundraising, the outlook is bleak. Even before COVID-19 hit, analysts were predicting a wave of company collapses in 2020. It now seems more likely than ever.
Although recreational cannabis might be counter-cyclical (similar to alcohol, entertainment and beauty products), if people feel their income is threatened, they will be more likely to revert back to cheaper black market suppliers.
The flow-on effects of this are uncertain. Companies desperate for revenues may slash prices, which would be good for patients and consumers, but as a long term strategy may be unsustainable. In Australia, many companies are currently engaged in a long and expensive build-out phase. The interruption of global supply chains may increase construction input costs, and thereby blow out budgets.
If patient demand declines significantly due to economic stress, it seems reasonable to expect that 2020 will see many product lines discontinued entirely as companies go under.
There is however a silver lining for some companies. Nutraceutical and pharma businesses, which have long been on the sidelines of the cannabis industry, are now well positioned to make an entrance. Some of these companies are seeing their cashflow skyrocket and will be able to deploy some of this cash into the acquisition of distressed cannabis assets.
In any economic downturn, workers tend to absorb a disproportionate share of economic shock. Large, profitable companies may be able to afford mitigating arrangements for employees such as extended sick leave. For cash-strapped cannabis companies, this will not be possible.
Large projects are likely to be delayed or canceled as companies seek to conserve cash resulting in delays to new hires and termination of existing roles. And many Australian cannabis companies employ a sizable number of MSLs who will now find it extremely difficult to connect with interested doctors. Their jobs may be threatened as a result.
The long run
As of mid March 2020, unit sales and active patient numbers are at historic highs. And the industry is just getting started. In Australia and around the world, demand for cannabis products continues to be strong. In many ways, the fundamentals of cannabis companies have never been better.
The next few months will be extremely difficult for patients, doctors, companies and workers. That’s as true for the cannabis sector as it is for the economy overall. But Australia is quite well positioned to bounce back from this crisis and companies with strong value propositions and cash reserves will benefit from a transition to Cannabis 2.0.
In the meantime, we should continue to take practical steps to protect people’s health and wellbeing. And focus on supporting those in our communities, both inside and outside of the cannabis sector.
FreshLeaf Analytics, a division of Southern Cannabis Holdings, is the leading supplier of data about the medicinal cannabis industry in Australia. We have access to medicinal cannabis product, pricing and clinical data sets from some of Australia’s leading healthcare companies and organizations including healthcare clinics, pharmacies, product suppliers and the TGA. The FreshLeaf Analytics team provides custom research, analysis and consulting services in the Medicinal Cannabis market in Australia. The FreshLeaf Analytics team can be contacted on +61 2 8203 8741 or firstname.lastname@example.org