Even before the coronavirus pandemic defined the year, and perhaps a generation, 2020 was slated to be a time of reckoning for the cannabis industry. Humbled by an ongoing market correction and subsequent cash crunch, many cannabis companies faced a tough year ahead — even without a global pandemic to contend with.
Throughout the terrible lows of 2020, though, there were unexpected flickers of optimism. As this infamous year winds to a close, the industry will head into 2021 propelled by titanic shifts in the perception of cannabis in the U.S. and unprecedented political tailwinds.
“When you talk about [cannabis] shifting from this illegal world that it lived in to an essential business — where you have schools and churches closed, but your dispensary is open — is certainly a big shift in the United States,” Joe Caltabiano, co-founder and former president of Cresco Labs, said in an October interview.
Even before the coronavirus pandemic hit the U.S. full force in mid-March, cannabis companies could already feel foreshocks of the earth-shaking pandemic to come. Companies doing business in China, like vape, equipment, and specialty packaging manufacturers, were hit by demand-based price hikes on raw materials and delays due to factory closures, worker shortages, and transportation restrictions. These new hardships only compound difficulties for the cannabis sector.
ESSENTIAL BUSINESSES ONLY
No one could have anticipated the disruptions to come. Pandemic-related lockdowns kicked off in many cities and states in mid-March. People rushed to stock up on essentials for the quarantine — and cannabis was no exception.
The concern didn’t last long.
Many in the industry took the occasion to celebrate the decision as an endorsement of the legitimacy of the industry. Looking back, many still think of the essential designation as a turning point for cannabis stock recovery and for reducing stigma around the industry.
“Cannabis was deemed essential in over 20 states in the United States. And that’s the first time that cannabis was ever deemed essential, along with hospitals and grocery stores and gas stations,” said Jessica Gonzalez, cannabis and intellectual property attorney at Bressler Amery & Ross. “I think that what it shows is, there’s really a change of attitude of what [cannabis] actually is — that it’s no longer this really kind of scary ‘Devil’s Lettuce,’ but that it is a medicine and it is recession proof.”
DESPERATION BREEDS INNOVATION
“I think [the pandemic] advanced cannabis companies five years as it relates to technology,” Caltabiano said.
With summer came political unrest and a worldwide reckoning with systemic racism in the aftermath of the deaths of George Floyd, Breonna Taylor, and many other unarmed and innocent Black Americans. Conversations about drug reform and the disproportionate impact cannabis criminalization has had on communities of color were top of mind, and it soon became clear politicians wouldn’t readily forget cannabis as the contentious 2020 election drew nearer.
POLITICIANS PRIORITIZE CANNABIS
“We don’t think that he’s going to be super progressive in terms of, you know, pushing for a full descheduling of cannabis. But clearly, his administration has shown an openness to progress. And that really even started before he selected VP-elect Harris for the ticket, where he did sign kind of a unified agreement with Bernie Sanders that did include the decriminalization of cannabis,” said Vivien Azer, managing director and Senior Research Analyst at Cowen.
CANNABIS SWEEPS A DIVISIVE ELECTION
The election on Nov. 3 ultimately came and passed. It wouldn’t be clear who won the presidency for some days, but one thing was certain: amid a highly divisive election season, voters came together on cannabis. Voters in all five states with cannabis-related initiatives on the ballot approved those measures by wide margins. It was a clean sweep for the industry and represented significant upside for U.S.-focused cannabis companies, especially those with operations in markets that will soon open to adult-use like New Jersey and Arizona.
Several of the states with cannabis on the ballot in November are traditionally conservative and tend to vote Republican, including South Dakota where voters approved both medical and adult-use cannabis. Dan Pabon, general counsel, and chief government affairs officer at Colorado cannabis company Schwazze, said the election results represented a “canary in the coal mine” as far as a trend toward broader, bipartisan acceptance of cannabis reform.
In spite of shifting political trends, the fate of cannabis on the federal level still hangs in the balance. A Biden presidency won’t mean much for cannabis if the Senate is still under Republican control, especially with cannabis opponent Sen. Mitch McConnell as Majority Leader.
“If the Republicans maintain control of the Senate, the best that we think we can get is the SAFE Banking Act. And that really would only address access to commercial banking,” Cowen’s Azer said.
If Democrats win, however, it could kick off a flurry of mergers and acquisitions, according to Jason Wilson, a partner in ETF Managers Group’s Alternative Harvest ETF. And it won’t just be any M&A. Long gone are the land-grabbing, cash-flush days before the cannabis market rout. Companies now are much more intentional about their acquisitions.
“We started a few years back doing acquisitions for the wrong reasons, really going into these green meadow opportunities where they had a lot of cash available, and they’re just trying to grab market share. They realized that that was the wrong approach,” Wilson said. “They’ve come to the realization that they have to run like any other CPG company. And they’re focusing on synergistic acquisitions, to basically get their products into expanded marketplaces.”
Democrats haven’t even won the runoff elections, and M&A in the cannabis space is already heating up.
Even if Democrats lose in Georgia, and the Senate continues to pose a stumbling block for federal cannabis reform, states have historically been the vanguard of legalization. And the economic destruction wrought by the pandemic only helps the cause of cannabis on the local level.
Leaders in states like New York and Pennsylvania are itching for a new source of tax revenue. With New Jersey’s upcoming medical program just a stone’s throw away, experts like Gonzalez, who worked on NJCAN 2020, expect New Jersey to precipitate more adult-use legalization across the Northeast.
“New Jersey is really going to be that domino that once it falls, it’s going to catalyze the Northeast,” she said during a November interview. “New Jersey is right smack dab in the middle of some of the states with one, very high-density population, but we’re also right across the river from the largest cannabis consumer market in the world, which is New York.”
With 2021 around the corner, the events of the past 12 months have demonstrated time and again how difficult it can be to predict events that might completely change an industry. But for once, the winds of political change seem to be blowing in the cannabis industry’s favor. And as 2020 draws to a close, the cannabis industry has once again proven itself more resilient than most, transforming from stigmatized to essential over the course of a turbulent 12 months.