Editor’s Note: As a public service, BizWest is making all of its coverage of the COVID-19 virus free to read. Please consider subscribing to BizWest to support our efforts to keep you informed on Northern Colorado and the Boulder Valley’s top business news.
Business is booming for Boulder Valley and Northern Colorado cannabis retailers as shoppers rush to load up on products to make COVID-19 self-quarantine a bit more bearable. But with no end to the coronavirus crisis in sight, supply-chain disruptions possible, and a potentially disastrous global economic contraction on the horizon, the industry’s longer-term prospects aren’t quite so rosy.
How a business manages its inventory can have a tremendous impact on the financial health of the company. Managed properly, inventory can be a great source of increased margins, higher revenue, or a combination of the two.
“People are stocking up cannabis just like they’re stocking up on toilet paper,” Bethany Gomez, a managing director with cannabis-industry analytics firm Brightfield Group said.
Sales last Friday were up 28 percent over the previous Friday, according to data from Boulder-based BDS Analytics.
Some dispensaries reported that last weekend was “busier than 4/20,” the unofficial marijuana holiday held on April 20, BDS vice president and chief analyst Greg Shoenfeld said.
“Consumers are spending a lot more on each visit that they have in recent months,” Shoenfeld said.
More than half of cannabis consumers in states where recreational pot is legal have or plan to stock up, and 32 percent plan to use marijuana more frequently during self-quarantine, Gomez said, citing a newly conducted Brightfield survey.
Gomez referred jokingly to social-media posts from users who claim “the lifestyle of smoking weed at home and watching Netflix has now been validated.”
Many medical consumers use cannabis for anxiety, “and of course right now anxiety is heightened,” BDS CEO Roy Bingham said. Opportunities for recreation, which many anxiety sufferers use to help reduce stress, are essentially nonexistent, leading to heavier reliance on cannabis.
Demand from cannabis consumers is compounded by the “stock effect,” Bingham said. The stock effect phenomenon suggests that when consumers have more of a particular product on hand, they’ll use that product in higher volumes than they would under normal circumstances.
Due to the respiratory nature of COVID-19 symptoms, experts expected consumers to shun smokable or vapable products in favor of edibles. But that phenomenon has yet to materialize, and cannabis flower saw the biggest sales bump last week, according to BDS data.
The run on pot shops has not yet resulted in a spike in retail prices.
“So far, we have not seen a significant change in pricing,” BDS CEO Roy Bingham said. “But we have seen some dispensaries removing special offers and discounts.”
Gomez said she doesn’t expect to see prices spike unless there is a disruption in the supply chain. However, the marijuana industry, by nature of being highly regulated by state governments where it is legal, is insulated from those disruptions.
“Cannabis is largely a self-contained industry,” she said. “By law, things have to be cultivated, processed, extracted and sold all within the same state.”
It’s the supply of Chinese-made ancillary products — vape cartridges and packaging, for example — that is more likely to be disrupted.
Unlike many other businesses such as bars, theaters and gyms, Colorado government officials have yet to order pot shops to close.
While there was one recent local example of a dispensary closing voluntarily — Organic Alternatives in Fort Collins — Bingham said “the dispensaries we’ve talked to say they’ll be staying open unless there are regulatory orders that force them to close.”
More than 70 percent of retailers surveyed by BDS said they plan to stay open through the crisis.
The coronavirus outbreak is expected to help facilitate a shift in consumer behavior.
In Colorado, cannabis transactions have historically occurred in person; consumers go to a dispensary, wait in a lobby, then a budtender personally sells the product and rings up the customer.
In the era of social distancing, this model is less feasible. In fact, the shift to online ordering and delivery services — already popular in other recreational-cannabis states such as California — began before the coronavirus outbreak.
Earlier this year, a Colorado state law went into effect that permits dispensaries to deliver products to medical marijuana card holders.
Denver-based retail chain Native Roots announced this week that it is the first company in the state to receive a license to deliver pot. That delivery service will start this month in Boulder with the Native Roots-owned Dandelion dispensary at the Pearl Street Mall.
“With permission from both municipal and state regulators, we are excited to begin the first-ever legal cannabis delivery service in Colorado out of The Dandelion, our medical-only dispensary in Boulder,” Shannon Fender, Native Roots’ director of public affairs, said in a prepared statement. “We are hopeful other jurisdictions will follow their lead and opt-in to medical delivery as soon as possible.”
Experts say the COVID-19 outbreak could lead local officials in cities across Colorado to reduce regulations that curtail delivery service. And once those regulations are rolled back, they are unlikely to be reinstated once the coronavirus crisis is resolved.
“You give us an inch, we’re going to hold onto that and ask for more,” Nic Easley, CEO of cannabis-centric 3C Consulting LLC, said.
Shoenfeld said the current crisis presents “an opportunity for consumers and retailers to retrain” and shift the industry away from in-store shopping and toward order-ahead or delivery options, which tend to be far more efficient.
According to Easely, deli-style service — customers buying cannabis over the counter from a budtender who weighs their individual purchase — is 37 percent less efficient in terms of sales per employee per hour compared with pre-packaging and pre-ordering.
This shift is also likely to shake up the way product manufacturers market to consumers. Eye-catching packaging becomes less important if consumers aren’t browsing the shelves of dispensaries and highly functional e-commerce platforms become far more important.
Should the COVID-19 crisis evolve into a full-blown economic downturn, it will be an interesting test for the nascent cannabis industry, experts say. The recreational pot market, which was born in earnest with Colorado’s 2014 legalization, has yet to face a recession.
“In a recession environment, medicines, supplements and vices typically do pretty well,” Gomez said.
However, lack of borrowing ability and access to capital will “create some challenges, especially with the smaller companies, in being able to weather the storm,” Gomez said.
“This is going to be a tough economy across the board,” she said. “It’s not going to be smooth sailing for anyone out there.”
© 2020 BizWest Media LLC