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Azuca CEO, Kim Rael, on industry challenges, new opportunities, and why the cannabis industry will emerge stronger in a post-covid world.
Essential and Rigorous: Why Cannabis Will Emerge Stronger Post-Covid
COVID-19 continues to wreak havoc across all sectors of the economy and businesses are struggling through unprecedented disruption. The cannabis industry is not an island—we’ve been heavily disrupted too. We are concerned about supply chain, short- and long-term impact on sales and consumption, and the overall economic well-being of our communities and customers. At this point in the pandemic cycle, it is critical that we continue to adhere to all recommended and mandated public health measures, and keep our teams and families safe and healthy. While we’re all working to flatten the curve, we must also stay ahead of it, and begin to plan for the future, so we can be prepared when things get back to normal—or whatever that new normal may be.
REGULATORY CHALLENGES AND NEW OPPORTUNITIES:
Cannabis is the fastest growing industry in the United States, yet we continue to battle strangling regulatory, legal and policy restrictions. In addition to the rampant regulatory constraints on the industry that existed before the current crisis, the pandemic has sewn even more confusion. On one hand, cannabis has been deemed an “essential business” in many states, but on the other, the federal government has explicitly excluded cannabis
businesses from stimulus benefits.
While this is unfortunate, I predict that COVID-19 will become the catalyst to accelerate legalization as states and local governments seek revenue sources to plug gaping public sector budget deficits. Additionally, Congress has a straightforward option to support economic growth and job creation without draining the Treasury and should immediately pass the long-overdue STATES Act and SAFE Banking Act. As an enhancement to stimulus initiatives that require massive fiscal outlay, removing the federal noose from the industry’s neck is the smartest, most cost-effective stimulus move Congress could make. In addition to rationalizing access to financial services for the cannabis sector, the STATE Act offers economic stimulus by resolving the restricting effect of 280E, the federal statute that bars cannabis companies from taking normal business tax deductions. 280E requires cannabis entrepreneurs to pay taxes on all of their revenue without the benefit of being able to use business expenses to reduce their taxable income. This has been an undue and crippling burden on cannabis companies, especially small independent cannabis entrepreneurs. Stimulus from resolving this long-overdue issue alone would allow cannabis companies much-needed relief.
A similar economic opportunity exists in the hemp CBD sector. As a response to COVID-19, Congress should expedite pending legislation and force the FDA to adopt prudent, safe, and affirmative regulations to allow the hemp CBD industry to prosper. This is especially necessary for the ingestible category, which is burdened by incoherent, crippling state-by-state regulations and lacking affirmative federal guidance.
On a practical level, the pandemic has brought new interest, and I believe new long-term consumer demand, to the ingestible category. The combination of “Vape-gate” last year and the emerging data on COVID-19’s unforgiving toll on patients with compromised lungs is driving a growing demand for ingestibles (edibles, beverages, tinctures, capsules, sublinguals.) Solid edibles alone are up 37% over last year. Post COVID-19, it is likely that we are going to see an even more significant shift in consumer preference to edibles and beverages from inhalable/smoke-able products. Products with consistent, rapid onset times will emerge as the critical differentiator in the ingestible category. The post-COVID-19 world will be marked by new consumer demand for ingestible products that are easy to understand, simple to use, and effective.
We already determined that consumer demand in certain categories is skyrocketing, but how will companies market to them in our new climate? Historically, marketing in the cannabis industry, both B2B and D2C, has involved an in-person, events heavy culture. Most companies rely on networking during conferences, attending and giving talks on product development, as well as product samplings to large audiences. But even pre-COVID, industry insiders were beginning to question the necessity of event after event. Now, for better or worse, we are all forced to rethink this strategy. As states began to lock down, most cannabis events were quickly cancelled or postponed. For the foreseeable future, traveling for and attending these events will be put on ice. On the bright side, this will open doors for companies to get creative. We are already starting to see accessible virtual events and webinars. Companies are hosting digital hangouts for customers. Leaders are finding ways to connect through social media, educational seminars and more. I am confident the industry will develop more efficient ways of doing business until the landscape, appetite and comfort-level returns for in-person events.
ETHICAL COMPANIES RISE TO THE TOP:
The pandemic has had unprecedented impact on the work place. A record number of people are working from home, some are furloughed, and many are losing their jobs. Others, like dispensary workers, are considered essential employees and are continuing to put their health at risk and go to work. Cannabis industry executives and leaders have a responsibility to ensure their employees are protected and cared for. It’s important to stand behind companies that support their employees and that care about the wellbeing of the entire organization.
Companies that operate ethically will be rewarded. One Nielsen study shows that sustainable/ethical shopping behavior is growing, with 74% of Millennials reporting they would pay more for goods produced by companies committed to positive environmental or social good. More and more shoppers consider themselves conscious consumers, and seek out brands that prioritize purpose and people over profit. In a market place flooded with options, the companies that strive to do the right thing continue to rise to the top.
STRONGER THAN EVER:
At a time of great uncertainty and chaos, I am filled with optimism for the future. I believe that the cannabis industry will emerge from the pandemic stronger than ever. Of course, there will be a shakeout: companies with poor management, mediocre products, and unprofitable business models will fail, and those with strong, supportive leadership, great products, and smart business models will survive and thrive. With challenge comes new opportunity. The industry can begin to lean into the new consumer interest in ingestibles. Our policy leaders at the federal, state and local levels, have an opportunity to reap economic rewards from our flourishing industry, instead of supporting regulatory issues that impair us. As painful as this pandemic reset will be for the industry in the near-term, there are long-term dividends that will pay off and chart the course for the next decade of growth in cannabis.
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