Thank you to The Cannabis Society for inviting me as a panelist at their Worldwide Virtual Conference. All the speakers provided deep and valuable insight. The digital format of the event was incredibly successful and I’m glad to see the industry finding positive opportunities in current times.
My key takeaways are below.
Covid-19’s impact on the cannabis industry is varied across the world, but overall accelerating and proving to be a big winner in the next few years
In Germany from a demand side, pharmacies have placed larger orders than usual, either because patients may have longer prescription usages or pharmacies are pre-empting supply-chain difficulties. To note medical cannabis is deemed as essential and hence retail distribution is still strong alongside telemedicine / telehealth supporting home delivery. From a supply side and despite the virus, Bedrocan is still shipping medical cannabis to German buyers.
In North America, Covid-19 has interrupted the import of hemp seeds in time for planting season. In particular shipping containers, predominantly located in China, are in isolation to reduce virus transmission.
In the UK, supply is still flowing from the Netherlands, however there were some issues with oil acquisition and regulatory challenges were overcome to allow temporary allowance. Again, medicinal cannabis is deemed as essential so patient distribution remains strong alongside telemedicine / telehealth.
In Australia, telemedicine / telehealth is becoming increasingly normalised as a response to Covid-19. Over 30,000 medical prescription scripts were written in February and this is expected to increase to 100,000 by the end of the year. Recently the Community Affairs References Committee completed their enquiry into patient access, signaling a positive step forward (access here).
Importers are finding it difficult to source new producers.
In Germany, importers are preemptively looking to other producers to diversify their import sources but any new contracts are being slowed down by regulatory bodies.
Importers are becoming more suspect of their growers and producers, and are questioning their long term stability. Being well-connected in the industry is more important than ever.
Force Majeure clauses may play a role in the coming few months and should be reviewed as part of any future agreements struck.
The private investment markets are proactively reacting to Covid-19
Arcadian Fund is leaning into their portfolio companies and allocating resources to support their growth plans and mitigate risk. They remain bullish on the sector and note how their investors are using this opportunity to increase their exposure given how well the cannabis industry is reacting to the crisis.
Canopy Rivers is supporting portfolio companies by decreasing burn rates, improving awareness of supply chain distribution and focusing efforts on maintaining high levels of transparency with employees
AFI Capital Partners are utilising the depth of their team by increasing time spent with portfolio companies and providing voices of experience. Particular attention was brought to paying attention to cashburn, mitigating risk but also finding opportunity and upside in the crisis.
Argonautic Ventures are suggesting portfolio companies curtail high risk growth opportunities and lean on experience to weather the storm. It was noted that falling ARR is impacting valuations.
Tekening Capital noted how the cannabis industry is not being hugely impacted by Covid-19. In particular, tax collections are likely to be delayed and supply is not distributed at the state level. They expect future consolidation by the end of 2020.
Leafly Tunnel expects less capital to be available for new companies as existing funds will focus on their portfolio. Although the importance to reduce cashburn was noted, Leafly expressed that startups should not give up on growth initiatives.
The Cannabis Fund noted how the crisis is impacting decision making. They’re currently looking at interesting distribution plays, ancillary services and debt lending in the US to support cannabis industry growth.
Halley Ventures discussed the biggest change they see is investors and LPs are pulling away from investments. They expect as less sophisticated investors leave the market, educated money will be funneled to improve the strength of likely winners. Halley are also supporting their portfolio companies to find upside in the crisis through exploring new revenue streams and also providing financing when needed.
Startups are becoming increasingly divided, with future winners maintaining their valuations
Some startups are finding opportunities in the crisis and are maintaining or improving upon their sales targets. These likely winners are able to maintain their valuations.
Investor base is very important and is a key factor whether a startup can continue to invest in growth with the support of its investor base and potential future funding rounds despite negative cash flow projections
The future is green for medical cannabis and CBD products.
Despite Covid-19, cannabis is being perceived as essential and demand is growing day to day. Clinics in the UK are seeing an increase in inbound leads, investors recognise that the cannabis space as recession-resistant, and tax incentives for legalisation are all pushing the industry forward, highlighting the stability of the sector.
Telemedicine / telehealth is becoming normalised due to the crisis which subsequently supports patient access for cannabis.
Recent regulation has allowed UK wholesalers to stock more cannabis which will support increasing demand that is expected in the future.
As consumers search for online self-care solutions, e-commerce models are thriving. Some brands stocked on Alphagreen are reporting that their traffic has increased 300%.