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What Impact Will Covid-19 Have on the UK Cannabinoid Industry?

May 04, 2020 | by Professor Mike Barnes, co-founder of Maple Tree Consultancy

What Impact Will Covid-19 Have on the UK Cannabinoid Industry?

The Covid-19 outbreak is causing unprecedented shutdowns around the world, toppling daily business operations and radically changing consumer habits in nearly every industry as lockdown restrictions remain in place.

While it’s still too soon to assess when the pandemic will peak and when the after-effects will subside, it’s clear that restrictions on business and travel have created seismic shifts that could potentially transform the culture and operations of the cannabis industry.

In US and Canada, one of the critical issues for industry players in the beginning of the pandemic was whether producers and retailers would be permitted to continue to operate by being deemed an essential service by their respective provincial regulators.

While cannabis was deemed an essential business in most states, cannabis businesses around the world face a unique set of challenges and will require business models to adjust in order to survive and flourish.

Dispensaries are quickly moving to e-commerce to stay competitive, consumers are starting to drift away from inhalable products and we can assume that like many other industries, there will be an increasing number of corporate acquisitions in order to consolidate capital, maximise resources and ensure supply chains are operational in this period of uncertainty.


Medical cannabis

If we look at medical cannabis, healthcare professionals’ time and attention are increasingly pressured and directed towards managing the disease outbreak affecting patient access to medicine. However, the medical cannabis industry has quickly adapted to these challenges by rolling out online consultation services to improve patient access. A key concern will be how independent regions address the issues in the supply and the logistics chain as they seek to grow and cultivate cannabis in the coming months. With tightened borders and employees lost to quarantine, the supply of flower could also take a hit, especially as the industry enters the growing season. This could cause patient access problems that are potentially life threatening.

While the UK Home Office activity for licencing will be limited during this time, it will be vital that regulators adapt to ensure supply lines are kept open so that distributors can meet demand and patients receive their medicine.

On 29 April, the UK government published emergency legislation which will allow patients to continue accessing controlled drugs for the duration of the pandemic, from local pharmacies, without a prescription. This is intended to relieve pressure on the healthcare system and encourage people to stay at home. This applies to patients with ongoing NHS treatment so there is still a way to go, as private cannabis clinics fill some of the gap in the meantime.


The CBD market

With Covid-19, there has been a wider focus in the media on staying healthy and boosting immune systems, which is driving consumers to all sorts of health-focused products, including CBD.

Fortunately, many of the physical retailers who stock CBD products in the UK fall into the categories permitted to stay open even in a country-wide lockdown, so some consumers are bulk-buying their usual products while others are turning to e-commerce and CBD deliveries. Despite some experiencing an uptick in sales, figures are likely to decline as the rush to stockpile subsides leaving companies to deal with higher operating costs within an economy that many believe to be on the verge of recession.

Individually owned CBD retail operations will be harder hit as changing government policy around social distancing measures and consumer fears continue to cause swings in sales.

It’s a bitter pill to swallow for the cannabis industry, which has already battled regulatory hurdles, access issues, misinformation, and a lack of understanding and acceptance.

Combined with disruptions in the labour force for cultivation, processing, and shipping, cannabis product inventories will be unpredictable for some time to come.


Market entry and business transformation  

For international cannabis firms looking to launch into the UK, a fully-fledged entry may be difficult at this time, to say the least. However, amid all the doom and gloom, there is an opportunity for UK CBD brands to capitalize in a less crowded market, build brand equity, grow a customer base and be smarter about their online community efforts.

While businesses navigate the impact of the coronavirus, this is a great opportunity for cannabis companies to refocus, reevaluate and restructure themselves as a company. This could involve refining policies and procedures (from seed to product) to ensure processes and quality control measures are in place to meet evolving patient and customer needs. They could also look to refresh the brand and messaging to resonate with present concerns and consumer behaviour and tailor marketing materials accordingly.

The pandemic creates conditions that force companies to consolidate and become more efficient from reducing expenses to lowering headcount and selling non-core assets to accelerate their path to profit. It will provide a competitive shakeout that rewards the most viable players who have a clear vision and quality product, thus creating a stronger and more responsible industry for the future.

Responding to a crisis isn’t easy. Every company is different, and one solution might not fit every business. The burgeoning cannabis industry has proved to be resilient to socio-economic volatility in the past and with an adaptable sales model and strong understanding of the behaviour of its consumer base, businesses could emerge stronger.


 

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