• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Cannabis

Coronavirus Pandemic Exposes Strengths and Weaknesses in Cannabis Companies

Those that could quickly pivot may earn a new set of customers.
By DEBRA BORCHARDT
Mar 27, 2020 | 02:00 PM EDT
Stocks quotes in this article: HSDEF, AYRSF, TRSSF, PLNHF, MMNFF

The Covid-19 pandemic has exposed the strengths and weaknesses among cannabis companies. While many dispensaries have reported big increases in sales, others find themselves scrambling to address a new landscape.

Making a hard pivot isn't uncommon for cannabis companies, but several were already well-positioned for the crisis.

Whether it was already having delivery enabled sales or the space to create social distancing within stores, several companies have found themselves on the right side of the crisis, while others were clearly unprepared.

Recreational dispensaries in Massachusetts looked like they finally making up lost ground over the slow rollout. The virus caused shoppers to crowd stores in order to stock up.

Those shoppers were right to do so because the state decided there would be no more rec sales, only medical marijuana. This will benefit the medical dispensary owners, but the recreational stores will certainly feel an unlimited closure.

Andy Seeger, a Research Manager at cannabis data firm Brightfield Group said, "COVID is scrambling supply-chains and route-to-market options, forcing the notoriously slow governmental cannabis offices to respond much more rapidly than we have ever seen. Patient access and the healthcare as well as general business sustainability within the industry is now pushing liberalization of multiple markets across the country. This is a strange time, and in some ways an opportunity to right many market inefficiencies within the market by swiftly addressing issues and challenges."

According to Brightfield Group, 52% of cannabis consumers said they stocked up or planned to stock up on cannabis, only 28% said they wouldn't. Even though the virus specifically attacks the respiratory system, only 7% of cannabis consumers said they were going to cut back on inhalable products.

Here are some of the companies that were shelter-in-place ready:

Harborside

Harborside Inc. (HSDEF) (CSE: HBOR) said they already had a robust delivery service and online ordering system (via Jane), and then Jane turned around a software upgrade allowing for curbside pickup within 24 hours of the request. Also in Palm Springs, the company was already equipped with a drive-thru window. They're also hiring more delivery drivers to keep this up.

Peter Bilodeau, interim CEO of Harborside said, "We are pleased with how quickly our team has been able to mobilize and execute operationally to meet the demands of the evolving environment of COVID-19. With the help of Jane Technologies, we were able to quickly enhance our already robust delivery service and online ordering system. We have hired additional delivery drivers to meet the high demand of online orders we have been receiving. Also, our Government Relations representative negotiated with local and state governments to allow for curbside pickup of orders at our key locations. Combined with our Desert Hot Springs location, where we already operate one of two licensed drive-thru dispensaries in the State of California, I am confident that we are well positioned to continue to serve our customers in a safe and compliant manner"

Ayr Strategies

Ayr Strategies Inc. (AYRSF) (CSE: AYR.A) is in states that could have potentially given it problems such as Nevada and Massachusetts, but the company has focused more on locals in Nevada versus the tourist crowd and is well situated for medical patients in Massachusetts.

CEO Jonathan Sandelman said, "We have the necessary logistics and systems in place to support our transition to delivery. This week, we have secured over 35 vehicles to expedite our delivery program, and we aim to transfer as many of our 250 dispensary employees as possible to new roles supporting this business. Additionally, we are maintaining our relationship with Blackbird, Nevada's largest delivery service, which will continue to fulfill a portion of our deliveries.

"The delivery business model is powerful. Our average ticket size of delivery orders has been more than double the average ticket within our brick and mortar stores. Although it is still early, through our tiered delivery options-which allow customers to access lower fees and minimum purchase sizes for advance orders versus premium same day deliveries-we have the potential to generate significant revenue on an attractive cost base given the strong consumer demand. We may retain delivery as a key component of our Nevada operations even after our dispensaries reopen."

Sandelman continued: "In addition to the state designating medical cannabis as an essential service, Massachusetts regulators have accelerated access to medical cards, as many patients stopped renewing their cards after recreational sales began. To expand our patients' access to the products they need, we have extended a program offering discounts of up to 50% off the cost of medical cards. Medical dispensaries across the state, including ours, have seen sales increase throughout March as a result of increased patient demand. Average ticket sizes in our dispensaries have increased 30% relative to the average ticket in January and February."

Ilera Healthcare

Ilera Healthcare, which was acquired by TerrAscend (TRSSF)  in late 2019, looks to be well-positioned for the virus. Greg Rochlin, CEO of Ilera said, "At Ilera Healthcare, we've always had a strong e-commerce and online ordering component, but we've seen the percentage of orders being submitted online more than double in the past two weeks as compared to our prior baseline, which was around 15%. I would not be surprised to see that percentage shoot well past 50% in the coming weeks, as more people lean on the convenience, speed, and sanitary benefits of ordering online. To boot, overall business has shot up by double digits in the past two weeks as well, indicating just how much the community relies upon us."

He added, "Finally, we're fortunate in that our location was built to handle this additional volume as we are ready-made to distribute these online orders through a drive-through option. This is incredibly unique in the cannabis industry, as our building was previously a bank location. So the combination of ordering online followed by a drive-through pick-up that enables you to not even leave your car makes for the most health-conscious cannabis interaction that I know of, in Pennsylvania or anywhere else."

Pandemic Worries

Planet 13

Planet 13 Holdings (PLNHF) has targeted most of its market toward the tourist population in Las Vegas. This strategy worked very well, until it didn't.

The company was reporting record sales each month with baskets averaging $100 and more. The superstore had created a café inside and the Cannabis Museum is expected to move in soon. Unfortunately, the virus has put a stop to traveling and the casinos have been shut down for now. The tourist crowd has dried up and along with it, the shoppers at Planet 13.

The company quickly implemented a 24-hour delivery service, but locals mostly frequent other dispensaries. It won't be a surprise to see the company's sales drop due to the pandemic.

MedMen

MedMen (MMNFF) made it clear that it too was targeting the tourists. The company chose locations near airports and in cities with heavy tourist traffic. With airport traffic almost nonexistent, this tourist targeting, like Planet 13, may backfire.

MedMen was already facing a slew of troubles as the creditors wrestled the company away from founder Adam Bierman, now this becomes another problem to tackle.

Another sign that the company may not be weathering this virus storm is that it has issued no Covid-19 updates. While other companies are sending out business updates, MedMen has been conspicuously silent. The only news from MedMen this week has been a change on the board of directors.

The company has noted on its website that it has delivery in select locations, but is encouraging consumers to order online and then come to the store for a pickup. The company did note that it uses its own employees for delivery and was trying to fill orders as quickly as possible, so it may be that frustrated shoppers may turn to other providers if MedMen can't fill orders promptly.

Bottom Line

These types of black swan events truly show which companies were prepared for the unexpected. The companies that could quickly pivot may earn a new set of customers. The cannabis industry knows that loyalty among cannabis consumers is strong and if they can gain a new shopper now, they may have them for many months to come.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Borchardt had no positions in any securities mentioned.

Please note that due to factors including low market capitalization and/or insufficient public float, we consider several names mentioned to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.

TAGS: Investing | Micro cap stocks | Small Cap | Stocks | Cannabis | Coronavirus

More from Cannabis

Want to Invest in Constellation Brands? Wait for a Discount

Stephen Guilfoyle
Apr 6, 2023 11:10 AM EDT

The quarter wasn't great, but the guidance was promising.

Doug Kass: Cannabis Stocks Are Still Not SAFE

Doug Kass
Dec 20, 2022 11:15 AM EST

Though it is tempting, there are a host of reasons why I'm not bottom fishing.

Cannabis ETFs Could Soon Turn a New Leaf

Mark Abssy
Dec 8, 2022 1:11 PM EST

With likely passage of new legislation, the pot industry might have a remedy for the nausea it gave investors.

3 Market Sectors Are Likely to Be Most Impacted by the Midterm Election

James "Rev Shark" DePorre
Nov 8, 2022 6:22 AM EST

The focus is on positioning for the election and CPI Thursday.

I'm Monitoring a Cannabis ETF That's Showing Signs of Bottoming

Bob Byrne
Nov 7, 2022 8:04 AM EST

It's a dicey play as the price action isn't defined as yet and the ETF still could break lower.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 01:51 PM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    Adjusting Your Trading Approach to Shifting Market...
  • 06:54 PM EDT CHRIS VERSACE

    AAP Podcast: A Tongue -- and a Market -- Twister: 'Get a Debt Deal Done'

    Listen in as the Action Alerts PLUS Podcast tackle...
  • 12:07 PM EDT STEPHEN GUILFOYLE

    Selling Some of This Surging AI-Related Stock

    This isn't the only name in the Stocks Under $10 p...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2023 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login