The legal cannabis industry appears poised to enter uncharted waters: an economy engulfed by a full-fledged recession.
The coronavirus is inflicting severe damage to the world economy, raising the specter of a major economic contraction, and some economy watchers – including Bank of America – have already asserted the U.S. is in a recession.
How would legal cannabis companies hold up in a severe downturn? Fairly well, said several industry experts.
And alcohol sales might be a good barometer.
Industry experts note that most cannabis consumers are wedded just as closely to marijuana as they are to other essentials, ranging from pharmaceutical medicines to toilet paper and – perhaps a closer industry parallel – alcohol.
The accompanying chart shows that alcohol sales at the wholesale level held up relatively well during the Great Recession that stretched from December 2007 to June 2009.
And, over the longer term, sales increased.
Former Sacramento, California, cannabis regulator Joe Devlin, now senior vice president with Ikänik Farms, based in the state’s capital city, went so far as to say he believes the marijuana industry is “relatively recession-proof” because MJ has fallen into the same category as spirits and tobacco: It’s a relaxation vehicle and reward that consumers give themselves.
And it’s not something they’re likely to cut out of their budgets.
“A lot of these sin businesses – like alcohol, tobacco and cannabis – they hold up better in periods of recession than other traditional businesses,” said Beau Whitney, an Oregon-based economist who has worked for multiple cannabis firms, including New Frontier Data in Washington DC.
Whitney said that, based on his consumer demographic research, most marijuana users budget carefully for their monthly purchases, making it less likely that they’ll cut spending on cannabis instead of, say, spending less at Starbucks.
“Consumers budget for cannabis. And they will budget and spend consistently, even when they pare back payments on other things, like that latte or going to the movies,” Whitney said.