Experts see silver lining for U.S. cannabis industry and Illinois is leading by example

Bethan Rose Jenkins, Cannabis News Writer/Editorial

In April, recreational cannabis sales in Illinois topped $37.3 million. The financial results indicate major success in the state’s legal weed industry, which launched on January 1. It’s a surprising outcome for the newly-launched market, which is still going strong despite the social distancing measures imposed by the coronavirus pandemic.

Based on a report by the Chicago Tribune, the latest cannabis sales figures in Illinois represent the second-highest monthly total since the recreational program’s official launch. Transactions for adult-use products amounted to $147.2 million within the first four months of legal retail sales.

Given COVID headwinds and ongoing supply constraints,” the cannabis market in Illinois and beyond is demonstrating stability and sustainability during a time when the coronavirus pandemic has created a serious dent in the economy. This is according to Stifel Financial Corp. — a Missouri-based investment firm. The banking and lending institution is a diversified global wealth management company that strives to assist organizations, families and individuals in attaining their personal financial goals. 

Governor of Illinois deemed adult-use cannabis dispensaries as “essential” during COVID-19

A glut in cannabis supply has posed a challenge to the U.S. legal cannabis industry. While hundreds of cannabis business owners have been told that they must shut-up shop until the risks of COVID-19 diminish, “cannapreneurs” in other weed-friendly states have been showered in luck. Illinois is one of them, with Governor J.B. Pritzker allowing cannabis dispensaries to remain open; back in March, the governor dubbed cannabis retail stores and facilities “essential businesses.”

As of May 16, eight out of eleven states with legalized recreational cannabis deemed the industry “essential”. Gov. Pritzker’s decision was made to ensure the supply chain remains secure and steady for both social consumers and patients. In addition to this, the continued operation of cannabis stores in Illinois could help to prevent revenue flow interruptions, according to lawmakers. Their predictions seem to have transpired, with monthly sales figures published by the Illinois Department of Financial and Professional Regulation, revealing promising revenue totals. 

Monthly figures for cannabis sales in Illinois have continuously climbed since its inception at the beginning of 2020. The Department outlined the state’s cannabis revenue results as follows:

  • January pulled in $39,247,840.83 in total cannabis sales in Illinois; of that amount, 972,045 items were sold and $8,636,208.61 of the total amount came from out-of-staters.
  • February cannabis sales revenue in Illinois amounted to: $34,805,072.01; of which 831,600 transactions were recorded and $9,189,701.01 was raked in from out-of-state residents.
  • March cannabis sales revenue in Illinois crept up to $35,902,543.22; 812,203 items constituted that amount and $8,805,611.99 worth of sales came from non-residents.
  • April saw a slight rise in cannabis sales revenue in Illinois, with figures resting at $37,260,497.89; 818,954 items made up that amount and $7,524,847.47 was sold to out-of-state residents.

Stifel’s new cannabis survey shines light on industry impact caused by COVID-19

Even if Illinois is just experiencing a streak of luck, Stifel Financial Corp. (NYSE: SF) feels confident that the second half of 2020 will see cannabis supply chains across the U.S. running smoothly once again. In fact, a new Stifel survey confirmed this; featuring data from approximately 270 technology entrepreneurs, executives, and investors specializing in the private equity (PE) and venture capital (VC) sectors. 

Stifel’s survey was conducted at a critical time – between April 6-12, 2020 – in the midst of the global economy suffocating from COVID-19. The statistics published in Stifel’s survey means that cannabis businesses can harness a wealth of information during a fragile time and, essentially, avoid irreversible financial pitfalls.

While most business operations have endured intense economic damage since 2020 began, Stifel’s survey exposed some fascinating – and unexpected – insights. Based on the results, a significant portion of cannabis companies have retained adequate liquidity to stay afloat and, in some instances, funding has been sufficient enough to invest in new business acquisitions.

“Our technology industry clients and their investors appear well-positioned to withstand the immediate negative impacts of COVID-19,” said the Co-Head of the Stifel Global Technology Group, Cole Bader. “While a natural slowdown in activity is expected, we believe that technology will be the key driver of a global economic recovery and the sector will continue to grow strongly post-pandemic.”

Let’s take a look at some key takeaways from Stifel’s outlook on the cannabis industry during/after the COVID-19 pandemic:

  • 62 percent of PE/VC respondents anticipate long-lasting implications of six months or more on their business portfolio due to the Coronavirus crisis.
  • 46 percent of tech executives and entrepreneurs expect COVID-19 business disruptions to last for a minimum of six months. 
  • 55 percent of executives/entrepreneurs and 65 percent of PE/VC investors foresee “U-shaped recession” — a term used to describe drastic economic collapse, followed by a progressive and steady recovery.
  • 76 percent of PE/VC investors and 55 percent of executives/entrepreneurs intend on adding new acquisitions or – at the very least – are considering it amid COVID-19 business disruptions. 
  • Business growth has not been heavily impeded by customer churn; 77 percent of executives/entrepreneurs and 76 percent of PE/VC investors reported five percent – or less – churn in recurring revenue.

In summary, executives/entrepreneurs involved in the legal cannabis space have the most positive outlook regarding 2020 revenue projections for the cannabis industry, with the survey demonstrating that 34 percent of respondents in this category maintain an optimistic outlook in spite of COVID-19. Comparatively, while one-third of executives/entrepreneurs feel confident that their budget goals will be met, only 19 percent of PE/VC have faith that this year’s revenue projections will go as planned. Nonetheless, all hope is not lost.

“Interestingly, the majority of our PE/VC respondents are only forecasting a modest reduction in prices for acquisitions and sales of technology assets and expect to continue with add-on acquisitions for portfolio companies,” explained Patrick Seely of Stifel. “Deal activity may slow, but it clearly won’t stop.”

States that have forced cannabis store closures may want to take a leaf out of Illinois’ book if they are to meet financial projections this year. For the time being, Illinois – as well as numerous other legal weed states like Michigan and Oregon – are offering online cannabis-ordering services. This service is designed to minimize social contact and may even be enacted permanently post-pandemic.  

To view a complete overview of Stifel’s survey on COVID-19’s influence on the cannabis industry, click here.