How Coronavirus Could Impact the Cannabis Market: Should Investors Be Concerned?

Coronavirus

The coronavirus, which has now killed over 1,000 people, is devastating livelihoods, destroying families, and impacting not just the mining market, but the cannabis market as well.

Mining taking a hit is as expected—China is one of the largest producers of commodities like vanadium. Still, many might not recognize the impact the coronavirus might have on cannabis companies and, subsequently, cannabis stocks.

Here’s why the cannabis market should monitor the situation carefully.

How Concerned Should Cannabis Companies Be?

Following its grand reveal—2019 was the worst year on record for cannabis stocks—the cannabis industry took a long look in the mirror. Many companies had, as some might say, a wake-up call—a reality check.

After being on a downward spiral since April 2019, something needed to change, and the consensus was that 2020 would be a rebound year for cannabis stocks. No one, however, could have predicted the forthcoming of the coronavirus, its severity, and its impact on the financial world.

The cannabis sector is just one of the many industries that rely on China and its manufacturing and supply chains, mostly because of the low labor costs and the ability to mass-produce. But with companies in China boarding up their doors (so to speak), and hundreds of workers quarantined, direct players in the cannabis space need to tread carefully. They may start seeing some impacts.

Direct players, which include growers, may see a shortage of materials to make HVAC systems as well as LED light bulbs, for instance. This shortage is because cannabis organizations buy such products from China.

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It’s not just direct players that may feel the effects of the coronavirus, however. The cannabis industry also relies on ancillary cannabis stocks to function.

For example, KushCo Holdings (OTCQX:KSHB) might see some issues moving forward. The Cypress, California-based company sells vaporizers, and a lot of them: it acquires most of its revenue from selling them. The problem, however, is that, according to The Motley Fool, KushCo Holdings gets most of its vaporizers from China. The severity of this issue depends on where the products are imported from. Still, it’s something the cannabis company will have to consider if the coronavirus does not get under control soon.

At market close, the cannabis stock was down 2.70%.

If the coronavirus gets worse, lighting-solutions company Cree (NASDAQ:CREE) may also run into a few issues in 2020. The company manufactures LED bulbs; while these types have only recently spiked in popularity, Cree has a loyal customer base that it will not be able to service if the situation worsens, as its reliance on its Chinese manufacturing facility for these products is too great.

Or maybe not: at market close, Cree stock was up 1.59%.

Specific ties to China or not, it’s clear that over the past few weeks, there was a coronavirus-related selloff in the market. One cannabis company that felt the effects of this was Aphria Inc (TSX:APHA) (NYSE:APHA).

Cautious, Not Panicked

We know that the market always fluctuates during emergencies. However, we also know that during previous health scares, the damage was more short-term, and it didn’t turn out as bad as expected. That happened with the Severe Acute Respiratory Syndrome (SARS) in 2003, a virus that has ties with the coronavirus.

All the cannabis space can do moving forward is to stay cautious.

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