The Coronavirus outbreak brings concerns to investors and cannabis companies. A majority of vaporizer hardware is produced in China and hence cannabis companies are facing massive disruptions.
Marijuana companies that rely on China usually face disruptions in the winters during the Lunar New Year in China.
Nick Kovacevich, the Chief Executive of KushCo Holdings Inc. shared, “The spread of coronavirus has extended the pause by another three to six weeks”. He also shared that may companies stocked up their inventory ahead of the celebrations.
What is delaying the production is that the workers couldn’t get back to work after their break. This is the reason why people in the cannabis industry are a little frustrated.
The sale of vapes and cannabis-derived products was legalized by Canada in mid-December. This move was being touted as Cannabis 2.0 in the industry.
Also, the legalization of recreational cannabis in Canada, in general, has contributed to the widespread supply shortages. The products have been flying off the shelves at a rapid pace.
Brendan Kennedy, CEO of Tilray Inc. expressed his concerns that the company cannot produce enough products to fulfill the demand. He also added that the product shipped to Alberta got sold out in six days.
Kennedy shared that the company has been taking good care of the supply chain. Apart from vape hardware, the company can find sources for the core products in Canada as well as internationally.
Kennedy further added that procuring vape products from international sources would ease off the pressure as the company is currently sitting on a significant amount of unbranded vape inventory.
Another company, KushCo, which derives half of its revenue from vape products has enough hardware to function normally. The disruption faced by cannabis companies currently is because the hardware is rare and is custom-built for companies.
Cy Scott, the CEO of Headset Inc., a Washington-based company, also shared his insights on the matter. He said that vape sales tend to grow against sales of raw marijuana. Whenever a new market opens, the share of raw marijuana starts at 80 percent roughly. However, it drops to 35 percent to 50 percent range over time.
Another factor impacting sales is the concerns about lung injuries and vaping-related illnesses. This concern has damaged the earnings of most of the weed companies including KushCo. The company noticed a dip in its earnings in the December quarter.
Data procured from Headset highlights that the sale of vapes declined by 5 percent in Washington, Colorado, and California between August and October.
Prior to concerns about health, cannabis companies purchasing vape hardware from China had to bear the brunt of escalating tariffs due to the trade war.
However, the situation isn’t getting any better for companies doing business pertaining to cannabis. But, there is still hope. Maybe, the companies can find partners in other regions instead of relying on China alone.