How Has the Coronavirus Pandemic Affected The Cannabis Market?

The cannabis market is relatively young — its legalization started only in 2013, with Uruguay being the first country to legalize private sales of hemp. Since that time a number of countries including Canada, Georgia and some European Union have allowed using cannabis for recreational purposes. Meanwhile, the United States is still moving along this path — although cannabis trafficking is legalized in 33 states, it still remains illicit at the federal level.

Showing unprecedented capitalization last year, the cannabis market, however, has not escaped the disastrous effects of the coronavirus pandemic. Below are some cannabis companies that saw their stocks both falling and growing in price over the past four months.

1. Canopy Growth

Canopy Growth Corp (NYSE:CGC) is a medical-use cannabis producer with a capitalization of more than $6 billion. At the moment its share price tends to find its way back to the level preceding the pandemic outbreak. Its price has dropped by 55% between February and 21 March 18, followed by the bullish sentiment, which continues to this day. With a price of $17,37, as of May 29, the CGC increased in value by 78% over the last two months.

2. Aurora Cannabis 

Aurora Cannabis (NYSE:ACB) is another major player in the cannabis market with a capitalization of $18.5 billion. Like the above-mentioned share, ACB sharply fell in price on March 18 with a subsequent growth by 97% over the next 10 days. However, unlike to CGC, on May 13, ACB hit its 3-year low of $5.8, before moving to new highs for the next month.

3. Cronos Group

The next interesting example is the share of the Cronos Group (NASDAQ:CRON) investment company. The company buys stocks of the most promising cannabis producers: Zone Produce, Peace Naturals, and Original BC. It also owns a 21.5% stake in Whistler Medical Marijuana Company and blocks of shares in companies such as Grow Canopy.

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Similar to the two companies mentioned above CRON saw its lows on March 12 and May 13, reaching $4.52 and $4.84, respectively. By May 29, the share price has returned to its minimum pre-crisis values of $6.53.

Market prospects

As a result of the decline in consumption, the demand for services and goods not related to basic necessities decreases. This directly affects the cannabis market as a whole. Leading countries in this segment — the United States and Canada -— have come under considerable siege.

“The situation in the USA and Canada, where the share of the services sector varies from 77% to 67%, is a good example of falling demand. The unemployment rate in the US soared to 15% after 4.4% in March and Canadian labor market statistics reflected an increase of up to 13%, while over the past years, the level of unemployment in the country didn't exceed 6%. This has a direct impact on the cannabis market as a whole, but our business is ready for such a situation,” says Alan Glanse, CEO of Juicy Fields, cannabis crowd growing platform.

In the medium term, the shares of the companies located in the US and Canada — the countries with a relatively balanced economy — will likely have higher investment attractiveness than companies based in other regions. The rapid recovery of business processes can lead to the outstripping dynamics of the stock and currency markets of states with GDP less sensitive to service sector trends. As such, the cannabis market is likely to maintain its investment attractiveness in 2020.