Cannabis Companies May Suffer From the Coronavirus
Licensed producers in Canada and the U.S. obtain nearly all of their vape hardware from China, Eight Capital analyst Graeme Kreindler warned in a Monday morning note. This year was expected to see strong growth in cannabis vape sales: The products are newly legal in Canada and are just starting to regain trust in the U.S. after a rash of lung injuries among black-market vape users.
But disruptions to trade resulting from Covid-19 may hurt. “The potential for factory downtime and shipments held up in ports puts vapes at the highest risk of disruption,” writes Kreindler.
Well-heeled operators are the best insulated from potential shortages, he figures. In Canada, the firms with the most net cash are Canopy Growth (ticker: CGC), Cronos Group (CRON), and Aphria (APHA). The American operator Curaleaf Holdings (CURA.Canada) has stacks of cash and has stockpiled vape hardware in recent weeks, says the analyst.
A diverse product line is another cushion against disrupted vape supplies, suggests Kreindler. Two U.S. operators with broad portfolios are the Chicago-based rivals Green Thumb Industries (GTII.Canada) and Cresco Labs (CL.Canada).
More modest disruption may ensue if cannabis growers run low on the masks and gloves used by their production personnel, the analyst said. Although DuPont (DD) and 3M (MMM) have pledged to boost production of such protective gear, the cannabis industry may find it expensive to source the stuff amid widespread panic buying by people concerned about the coronavirus.
”The general view is that supply-chain risk as a result of a viral outbreak is minimal,” writes the analyst. “We beg to differ.”
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