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  1. Home
  2. / Investing
  3. / Stocks

'Essential' Designation Could Keep Cannabis Industry Green

Push to make marijuana-related products 'essential items' could save the business amid coronavirus outbreak.
By DEBRA BORCHARDT
Mar 19, 2020 | 12:23 PM EDT
Stocks quotes in this article: EPWCF, MDCL, HSDEF, PLNHF, MMNFF

Some might consider cannabis a recreational item akin to beer or wine, but in some California cities, it has now been deemed an "essential item." What does that mean exactly? 

It means the dispensaries can remain open and sales can continue for both medical marijuana patients and recreational patients. California may be the first, but other states are considering making the same proclamation. 

The Michigan Cannabis Industry Association, a group of nearly 200 licensed marijuana businesses, sent a letter to Gov. Gretchen Whitmer and her administration "advocating that cannabis be deemed an essential item and that recommending physicians be permitted to see patients via telecommunications. Initial indications are that our letter is well received and we will continue to update you on our progress," according to the group's website.

Many would argue that recreational marijuana consumers are effectively self-medicating in these stressful times.

But Kris Krane, founder and president of 4Front Ventures said, "For many cannabis consumers, marijuana is an important tool for de-stressing. Many Americans would argue that access to alcohol during an incredibly stressful time for themselves and the nation is essential to their well-being. The same is certainly true for a substance that is non-toxic and does not produce the negative side effects like aggression, domestic violence, and hangovers."

It has certainly been stressful times for the companies themselves after a gruesome bear market in 2019 cut valuations of most companies in half. If dispensaries had been forced to close, it would have probably been the end for many companies. 

"NORML commends the decision of various state governments and local jurisdictions during this pandemic to designate medical cannabis facilities as 'essential' to the community. This designation permits them to continue to provide important services to patients who rely on them," said NORML executive director Erik Altieri. "There are several million state-licensed medical cannabis patients in America. Because many of these patients are among our more vulnerable populations, it is essential that they maintain uninterrupted, regulated access to lab-tested products during this time. Policymakers must not push these patients to the illicit marketplace, because unregulated products may contain contaminants, adulterants, molds, pesticides, or other components that could potentially endanger their health."

Empower Clinics Inc.  (EPWCF)  noted that the states of Arizona and Oregon have declared states of emergency and since Empowers are medical clinics, they are considered an essential service and are not subject to certain mandated closures.

Increased Sales Amid Stockpiling 

Consumers worried that dispensaries could shut down apparently stocked up. According to cannabis analytics firm Headset, sales of Adult Use cannabis in Washington state were up 23% on Friday, 14% on Saturday, and 33% on Sunday (over prior week). The company said sales were driven by a modest increase in total baskets (about 6% increase in tickets) and a large increase in average basket. Average baskets on Sunday were $33.70 before taxes, up 22% over the prior week and 28% compared to baskets in January and February of this year. The increase in average basket size was driven by increases in stock-up baskets with over 21% of baskets being greater than $50 (before taxes) compared to only 16% in the prior week.  

Medicine Man Technologies (MDCL)  CEO Justin Dye said, "We are still operating and ensuring we are meeting the needs of our customers while also implementing measures to ensure our employees are safe and healthy. We have added CDC-recommended cleaning measures targeting high-traffic areas to our current cleaning protocol at all of our business segments ."

Drive-Thru Cannabis: Ahead of Its Time

Once considered to be a goofy idea, drive-thru cannabis stores now look like the smartest guys out there. Many argued that consumers would want the experience of heading into a store and perusing the counters to see the numerous offerings. The idea that a consumer would give up that option and stay in their car seemed like a typical retailer gimmick. Not so dumb now.

Harborside Inc. (HSDEF)  was one of the first chains to develop a drive-thru window in Southern California. The grand opening was on Dec. 7, with appearances from co-founder Steve DeAngelo and comedian Jim Belushi. "Harborside has always been about pushing the boundaries of cannabis freedom as far as we can," DeAngelo said. Technically drive-thru's aren't allowed, but because Harborside included this in its original plans prior to 2018, it was accepted. NuWu Cannabis Marketplace in Las Vegas has a 24-hour drive-thru window. Florida and Massachusetts all have plans to open cannabis drive-thru dispensaries soon.

Ahead of the Curb-side

If a drive-thru wasn't in the physical plans for a dispensary, it looks like curbside service is the next best thing. On March 17, Illinois said it would allow curbside ordering in all licensed stores and dispensaries. Shoppers will stay in their cars and the "budtender" can deliver the pre-ordered items to them. In Massachusetts, many dispensaries switched to online orders only and closed the doors to walk-in traffic. Some have remained open, but have instituted a six-foot distancing requirement. The good part about dispensaries remaining open with curbside service is that the employees get to remain on the job and earn an income. The companies providing the products also get to keep their workers busy.

Las Vegas-based Planet 13 Holdings Inc.  (PLNHF)  said it will provide online ordering, delivery and core dispensary services. Larry Scheffler and Bob Groesbeck, co-CEOs and co-founders of Planet 13 said, "We encourage all Nevada residents who rely on Planet 13 to utilize our online ordering express pickup or delivery options to limit interactions and practice social distancing. Planet 13 is well-capitalized to weather this period of volatility, with roughly $16 million of cash on hand."

Locavores

Planet 13 may need that money. The company heavily relies on tourist traffic for its robust sales and Vegas has essentially been shut down. This will mean that dispensaries that rely on local residents will emerge much stronger from the quarantine than dispensaries built around tourist traffic like Planet 13 and MedMen (MMNFF)  whose locations were chosen mostly near airports and heavy tourist areas.

Still, being deemed an essential service is a huge plus to the cannabis companies. It may be the saving grace for this emerging industry.

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

TAGS: Investing | Stocks | Health Care Equipment & Services | Healthcare | Retail | Cannabis

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