This has been a year like no other. With the start of safer-at-home orders in March, the coronavirus pandemic drove people off the roads and into their homes. Restaurants, retail, travel and most other industries had to rethink how they do business — if they were able to do business at all.
Among those considered essential was the cannabis industry.
It was a very different prediction for cannabis going into this year before the pandemic hit. With uncharted territory, no one really knew how the business would be affected. So what happened? David Downs, the California bureau chief for Leafly, looks at what this year meant for weed.
KCRW: Last year, you predicted 2020 was going to be a “make it or break it” year for the legal cannabis market in California, which was outdone by a three to one margin by underground sales. How did it fare this year?
David Downs: “It's fair to say they made it and they didn't break it. The fact that cannabis got deemed essential in March and stores could remain open and the supply chain can continue to process cannabis was a watershed moment for the marijuana rights movement.
And then the cannabis industry adapted to corona to step up the PPE and the spacing and the masking, such that they were able to operate through the pandemic, keep their staff safe, and keep the consumers safe and really drive those sales.
The industry faced a number of headwinds this year that countered the tailwind of becoming essential. They continue to be punished by federal tax law that says that they’re drug traffickers.
So while a normal corporation might have a 21% corporate tax rate, the effective tax rate for cannabis businesses runs into the 70 or the 80%.
Another big factor: licensing. California has just a tenth of the number of dispensaries per capita as a state like Colorado. Though we did see hundreds of new dispensaries come online this year in California, there continues to be a multi-month or year waiting process, as well as a cost in the millions or tens of millions of dollars to actually get the doors open on a cannabis business, whether it's a farm or retail store.”
How did COVID-19 affect the industry?
“Well, two things. One, we saw the regulations progress for cannabis move in weeks and months at the speed that it would normally take years. So curbside pickup got rapidly turned on. Drive through has got turned on.
A number of ways to get cannabis that would have been mired in regulatory review were just automatically greenlit under emergency powers. And because of that, as well as other factors, we did see the consumption of cannabis rise considerably throughout the country in new markets as well as mature markets.
We have delivery services reporting 100% year over year increase in business. The numbers really increased, we think, because of the anxiety out there, the insomnia out there, and then a lot of travel budgets and dining budgets and other income got diverted to cannabis as people had to sit at home.”
How did edibles do in this market?
“The biggest market share goes to the raw flower. And then the other half of the market is split between extracts and edibles. So edibles comprised about 25% of sales, and they were very strong throughout the pandemic, especially as people got wary of putting anything into their lungs.”
Before COVID-19, West Hollywood famously opened one of the first cannabis cafes. Once outdoor dining is allowed again, what do you think we might see?
“We imagined at Leafly that 2020 would be the year that lounges expanded and COVID-19 really threw a curveball.
The issue of getting together in a commercial space to consume cannabis has continued to be a bridge too far for a lot of local cities and counties, even in states like Colorado that have had legalization since 2012.
The coronavirus shut down the lounges here in San Francisco and statewide, and it really stymied the movement toward more of them.
The entire cannabis tourism industry had big plans for 2020 that got put on the shelf because we couldn't work on cannabis breweries or cannabis winery-type experiences or any of these analogous to alcohol experiences that people wanted to push on this year.”