CannabisNewsWire
Editorial Coverage: COVID-19 has devastated most businesses but
created a surge in cannabis sales—a trend that’s likely to
continue.
Strange bedfellows, COVID-19 and cannabis. As the pandemic
wreaked havoc on the U.S. and global economies, cannabis sales
rocketed higher across multiple markets in North America.
California cannabis sales
soared nearly 160% compared to the same day in March 2019,
while sales in Washington rocketed 100% and Colorado saw a 46%
increase on the same day. This surge doesn’t appear to be a flash
in the pan either. An emerging leader in the U.S. cannabis
marketplace, Cannabis Strategic Ventures (OTCQB:
NUGS) (NUGS
Profile), is now on pace
for over $2.7 million in quarterly sales and approximately $11
million in annualized sales, based on its strong performance in
April and May. Simultaneously, the company increased its harvest
size by as much as 2.5x and is now selling product at an 11%
premium to industry standard. Like any industry, the real winners
in the cannabis markets are tied to sales and earnings growth.
Canopy Growth Corporation (NYSE:
CGC) has continued to release new products for a variety
of markets while attracting significant investment from the
beverage sector. Cronos Group
Inc. (NASDAQ: CRON) has continued to work on
expanding its international reach. With a similar focus on growth,
Aurora Cannabis Inc. (NYSE:
ACB) has acquired another company to expand its reach from
Canada into markets in the United States. Organigram Holdings Inc. (NASDAQ:
OGI), whose business was initially disrupted by COVID-19,
has begun a phased return to work and almost immediately announced
the release of new products, making the most of continuing consumer
demand.
Click here to view the
custom infographic of the Cannabis Strategic Ventures (OTCQB: NUGS)
editorial.
Winners and Losers in the COVID Crisis
COVID-19 has had a devastating impact on most businesses. Shops
and restaurants forced to close, manufacturers unable to operate
their plants, companies across the manufacturing and service
sectors seeing demand plummet. The layoffs and losses are very
real, and no one knows yet what the long-term economic impact will
be.
But some businesses actually benefited from the economic
disruption the pandemic has wrought. There are obvious ones like
pharmaceutical companies and those producing protective equipment
for medical staff. There are the tech businesses that facilitate
working from home, providing software for virtual workspaces and
online meetings. And there has been a huge increased demand for
home entertainment, which has spilled over into a less obvious
sector – cannabis producers such as Cannabis Strategic
Ventures (OTCQB: NUGS) (NUGS
Profile).
Cannabis Business Booms
Cannabis was already a boom industry in North America. This has
been driven by a range of recent changes, such as recreational
legalization in Canada, federal legalization of hemp in the US, and
the repeal of prohibition across a growing number of states. This
trend has allowed the growth of companies such as Cannabis
Strategic Ventures, which cater to a growing market as customers
move from criminal supply channels to legal ones.
Demand exploded during the early stages of COVID-19’s spread
through North America. According to the
Bank of America Securities, there were record sales of cannabis
as consumers stockpiled, preparing for a lockdown. While some
people bought mountains of toilet paper or tinned food, both
medical and recreational cannabis users were making sure they had
enough to see them through a crisis.
The result was a spike in sales in April and May to the benefit
of companies with recognizable quality products gleaned from
operational efficiencies such as Cannabis Strategic Ventures. Sales
could have been stymied as states locked down and restricted
business to control the spread of COVID-19. But most states
classified cannabis as an essential product, allowing sales to
continue even as other parts of the economy were shutting down.
Together, these factors led to record sales for some cannabis
companies, with Cannabis Strategic Ventures celebrating increased
sales of
cannabis product from its core cultivation facility and adding
staff to address the rising demand.
A Strong Player in the Cannabis Market
These sales marked an extraordinary month for NUGS. Despite
restrictions on business due to COVID-19, the company had
record-breaking sales in the final week of April, putting monthly
sales 800% higher than
the monthly average for Q1.
Any fears that this might be a blip caused by panic buying at
the start of the pandemic vanished the following month, when the
company announced sales from its most recent harvest. With cannabis
sales in the US average roughly $1,525 per pound, the company
sold its product
at around $1,700 per pound—11% above benchmark levels. This was
a particularly impressive price given that it had been selling at a
discount relative to the benchmark only six months before.
Of course, not all cannabis companies will benefit from the
crisis. Their ability to profit depends in large part on the
strength of their existing business. NUGS had been building up its
business prior to the crisis, with the addition of a
six-acre cultivation site in 2019, capable of four or five
harvests per year.
Seizing the market opportunity brought by COVID-19, the company
has announced further improvements in the first half of 2020.
Work on both the
quantity and the quality of output has more than doubled the
output of cultivation facilities while supporting rising prices for
its products.
An Expanding Industry
The long-term expansion of legal markets has led to dramatic
growth for cannabis companies over the past decade, and the
COVID-19-related influx of revenues provides well-run businesses
the resources they need for further expansion. Late April and early
May saw Cannabis Strategic Ventures sell out its
entire stock every week for a month.
“We have never seen anything like this,” said Cannabis Strategic
Ventures CEO Simon Yu. “We booked $100,000 in one day to clear out
all of our remaining inventory. We anticipated this dynamic but
still underestimated the force of the trend. Too much demand is
always the problem you want to have.”
NUGS sold $929,000 of
cannabis products in May and expects to see even greater sales
in June. Expanded inventory and product range have supported this
growth even in a time of crisis, while reinvestment from that
growth will let the company further expand its capacity.
Part of the sector’s success comes from producing a varied range
of brands and products. Rather than just selling weed, the more
successful companies have been developing a variety of cannabis
derivatives for different markets. While the recent boom in sales
has come from demand for cannabis itself, related brands have
diverse interests in supporting long-term growth of the market,
normalizing cannabis and its derivatives as consumer products, and
protecting companies against a disruption in any individual part of
the market.
Cannabis Companies Riding Out a Crisis
The boom in sales brought about by the COVID-19 crisis has
created an opportunity for a range of growing companies.
Canopy Growth Corporation (NYSE: CGC) is a
leading diversified cannabis, hemp, and cannabis device company,
with a range of brands and cannabis varieties sold in dried, oil
and gel capsule forms. It has gained in strength largely through
its diverse range of products and brands, which it has continued to
grow during the COVID-19 crisis, with the recent
announcement of new cannabis packages, infused drinks,
chocolates, and vaping components. The company made news in 2017
when it received substantial investment from Constellation Brands,
a leading beverage company, and Constellation has recently added to
that investment by purchasing
further shares – a sign of big business’s faith in the cannabis
market in general and Canopy Growth in particular.
With development and distribution spread across five continents,
Cronos Group Inc. (NASDAQ: CRON) is tapping into
the international potential of the cannabis market. The company is
focused on building disruptive intellectual property by advancing
cannabis research, technology and product development. Cronos saw a
year-on-year
rise in revenues in Q1 of 2020, despite some losses, and has
been working to expand its international reach. It has adapted to
the COVID-19 crisis by moving its
annual shareholder meeting online, allowing full participation
without the infection risks that currently come from large
gatherings.
Canadian-based Aurora Cannabis Inc. (NYSE: ACB)
serves both the medical and consumer markets, working as a pioneer
in global cannabis to help people improve their lives. The
company's brand portfolio includes Aurora Drift, Daily Special,
MedReleaf, and ROAR Sports. It will be expanding its lines with the
recently announced acquisition of
American company Reliva, which will provide Aurora with a
top-ranked hemp-derived CBD brand currently sold in over 20,000
mass retail locations in the US.
Organigram Holdings Inc. (NASDAQ: OGI) produces
high-quality, indoor-grown cannabis for patients and adult
recreational consumers in Canada, as well as developing
international business partnerships to extend its global footprint.
Though its work was initially disrupted by COIVD-19, in mid-May the
company announced the first phase of a
return to work. The company has quickly gotten back to
expanding its business, with the announcement of new product
releases for medical consumers.
COVID-19 caused serious disruption for most businesses but
spurred a revenue spike in the cannabis industry, creating a
substantial opportunity in an already expanding sector.
For more information on Cannabis Strategic Ventures, please
visit Cannabis
Strategic Ventures (OTCQB: NUGS)
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