Analyzing COVID-19’s Potential Impacts on the Hemp Industry

The once unstoppable American economic machine has ground to a halt in the wake of the coronavirus pandemic. As the number of cases soared past 150,000 Tuesday, most businesses across the nation have shuttered in compliance with social distancing and shelter-in-place orders, causing a record 3.3 million Americans to file for unemployment as fears of recession grow.

The hemp industry, like every sector of the economy, has not been untouched by this crisis. Hemp farmers and businesses might need to adjust to a variety of logistical and information challenges in the coming months while adjusting to altered market preferences and an economy disrupted by this unprecedented event. This crisis could require a rethinking of strategies for farmers, manufacturers, and commercial outlets producing hemp and hemp-derived products, and a number of trends are beginning to emerge that industry leaders must be cognizant of.

Shift From Retail to Direct Delivery

Retail hemp outlets are likely to see significant interruptions as non-essential businesses close their doors and consumer preferences adjust to this new reality. 

According to Nicole Stempak and Theresa Bennett of Cannabis Business Times, consumers may shift toward getting hemp products like CBD delivered directly to them rather than shopping retail.

This trend is already being seen by several industry professionals, with Balanced Health Botanicals CEO Chase Terwilliger telling Hemp Industry Daily, “Our independent retailers are suffering right now in a big way… What we’ve seen is an increase in our e-commerce sales and a decrease in our retail sales.”

Online sales are likely to increase as more Americans find themselves ordered to stay at home.

These shifts are most likely to be seen amongst existing consumers, with new consumers potentially avoiding buying hemp products due to the lack of information typically given by in-person specialists and stores. Without the information provided to them by knowledgeable professionals in-store, many potential clients will hold off on making their first purchases.

Supply Chain Disruptions

Meeting the potential demand for hemp delivery might prove a separate challenge, as every link in hemp supply chains could feel the ripple effects of the coronavirus disruption.

Many hemp commercial outlets are likely to reduce orders for new product as they aim to manage cash flow to survive the downturn. This, in turn, will impact the bottom line of B2B sellers, processors, and farmers.

Companies with an entirely domestic supply chain may avoid the complications that arise for decreased international trade and suspended international supply routes. But for companies like Quicksilver Scientific, which sources ingredients for its products from Europe, travel restrictions and the global downturn in economic activity threatens to pose long-term challenges to meeting demand.

All companies are likely to face challenges securing industrial packaging material to ship product, according to CBT’s Nicole Stempak and Theresa Bennett, as the majority of packaging materials are produced overseas and will likely face the same importation challenges.

Labor Shortages

The outbreak also poses a risk to employment throughout the hemp industry as employees throughout the economy are forced to work from home, care for children at home, or self-quarantining. Economist Beau Whitney echoed these concerns, saying, “As this gets more pervasive throughout the U.S., rather than having it in isolated pockets, there’s a real threat to having sufficient labor [throughout the country]. When you need people to work in a processing facility or need people to work the farms, you may not have them.” 

This could have extensive impacts on every stage of hemp production, from growing to manufacturing and through to the commercial front.

Potential Opportunities

According to some industry professionals, there might be opportunities that emerge as the direct result of this crisis and its correlated economic impacts. Virginia Lee, CBD research manager at the Brightfield Group, told CBT that this exogenous shock might lead consumers to shift towards American-grown hemp and away from international competition, especially from China.

“Given the glut of U.S.-grown hemp and the huge downturn in prices of U.S. hemp, I don’t see, even after this outbreak is cleared and supply chains are open, how it’s attractive to ship in hemp from China, which is over 7,000 miles away,” Lee said.

The Chinese hemp market has been steadily growing in response to waves of legalization around the world, and exports to these nations have historically threatened domestic producers, who say the Chinese product is of lower quality. However, with costs associated with importation set to increase in light of the pandemic, industry professionals may see a shift towards domestic supply chains.

Federal Relief

Industry members can also find relief in the CARES Act, the $2.2 trillion aid package recently passed by Congress and signed into law by the White House. The bill provides for $10 billion in SBA emergency grants, with each business eligible for up to $10 million in relief, $50 billion to the USDA’s Commodity Credit Corporation; and $100 million in grants allotted to improving rural broadband.

As a legal crop, hemp businesses are eligible to take advantage of each of these provisions.

 “We will deliver relief assistance to farmers and ranchers as quickly as possible,”Agriculture Secretary Sonny Perdue said in a statement.

In this time of profound uncertainty, all members of the hemp industry must be prepared for the unexpected. The National Industrial Hemp Council will continue to provide timely, relevant coverage of the coronavirus outbreak and be a leading voice for the hemp industry moving into the future.

Details of this story were originally reported by Hemp Industry Daily and Marijuana Business Daily.