Cannabis is one sector that has benefited amid the COVID-19 pandemic. Other sectors have taken a hit in some way. Cannabis demand increased as people rushed to stock up on products amid the lockdown. Canada declared that cannabis is an essential item. However, Ontario decided to remove cannabis from the essential item list. The decision will be a challenge for marijuana businesses. How will cannabis companies react? Let’s take a look.
Marijuana isn’t an essential item in Ontario
Recently, Ontario removed recreational marijuana from the list of essential items. As a result, recreational stores had to shut down. As I discussed in COVID-19 Pandemic Made Marijuana an Essential Item, provinces in Canada made marijuana an essential item. Previously, Ontario included marijuana on its list. However, Ontario’s government announced that all non-essential businesses would close as of April 4 to contain the spread of COVID-19. The lockdown will continue at least two weeks but possibly longer.
A Marijuana Business Daily article discussed how Ontario’s decision to shut recreational marijuana stores will impact private businesses. Ontario’s government has already barred private cannabis stores from offering online sales and home cannabis delivery services to customers.
Now, shutting down stores will impact businesses’ sales. No one knows when the lockdown will end. Currently, the demand for medical and recreational cannabis is high amid the pandemic. Many medical cannabis patients prefer using marijuana in the edible form. Notably, Canada legalized edibles, vapes, and concentrates a few months ago. The demand for Cannabis 2.0 products is high in the provinces. Ontario is the largest province in Canada and the largest market for cannabis. A Barron’s article stated that Ontario accounts for 40% of Canada’s population and 25% of its adult-use marijuana sales. However, the regulations were stricter in Ontario. The province rolled out legal marijuana stores slower last year, which impacted cannabis sales.
There was hope that the situation would be different in 2020. Ontario became more lenient on the number of retail shops that private retailers can own.
Cannabis companies in Ontario
Many Canadian marijuana companies are located in Ontario. Aurora Cannabis (NYSE:ACB), Hexo (TSE:HEXO), Aphria (NYSE:APHA), and Canopy Growth (NYSE:CGC)(TSE:WEED) said that Canada’s slower roll-out of stores impacted their revenues and profitability. Regulations were stricter in Ontario as well as Alberta and Quebec. However, 2020 looked hopeful for cannabis companies with the launch of cannabis 2.0 products. Also, Ontario’s decision to add more legal stores gave the sector more hope.
According to BNN Bloomberg, Ontario plans to open up to 1,000 retail stores by the end of 2020. A Barron’s article discussed that Eight Capital analyst Graeme Kreindler hoped that Ontario would open 255 cannabis shops by the end of 2020. However, data show that 53 stores are authorized to open, 134 are a work-in-progress, and 72 have filed a public notice of their plans to open. However, the numbers might differ now based on the current scenario.
Even though marijuana demand is high in Canada, the new restrictions for recreational marijuana sales will threaten cannabis revenues. Only the government-owned Ontario Cannabis Store is allowed to sell recreational cannabis. Many marijuana retailers are disappointed with the decision. Meanwhile, some people think that the phase will pass. Later, the government might be lenient with regulations and allow online sales or home delivery.
Currently, marijuana producers remain open. Hexo and Cronos Group already stated that they will be fully operational amid the coronavirus outbreak. They will work to meet the demand. Most of the marijuana companies will be reporting their quarterly results in April and May. We’ll see how Ontario’s decision has affected cannabis companies’ performance in this quarter.
Many US states classified marijuana as an essential item. However, Massachusetts won’t allow recreational cannabis sales.
How’s the marijuana industry coping with COVID-19?
On Wednesday, I discussed the various steps that marijuana businesses have taken across the US and Canada amid COVID-19. Read Will the Marijuana Industry Survive COVID-19? to learn more. Some cannabis companies hired more employees to manage the workload and to ensure the safety of their workers. Meanwhile, some companies used layoffs to maintain social distancing and conserve cash. OrganiGram laid off 45% of its workforce for the same reason. The marijuana industry isn’t eligible for any kind of emergency business relief from the federal government in the US, which makes it harder for them to survive amid the crisis. Rising marijuana sales boost cannabis stocks.
On April 8, Cronos Group closed with a gain of 8.0%. Meanwhile, Aphria and OrganiGram closed 4.9% and 6.4% higher yesterday. Hexo declined by 24.9%, while Aurora Cannabis and Canopy Growth saw gains of 6.6% and 2.2%. respectively.