After the global economy started to recover from the effects of the pandemic, many investors and economists are predicting that another recession may be around the corner, which would be the first since the legalization of marijuana in the US.
Despite the 2020 coronavirus pandemic’s negative effects, many people believe the cannabis industry is recession-proof. However, this doesn’t mean the sector can completely avoid experiencing economic crises. Various factors can affect the industry’s performance.
Should the Cannabis Industry Be Worried?
Contrary to popular belief, the cannabis industry is not recession-proof. Economic downturns and recessions are inevitable throughout the cycle of the economy. During the COVID-19 pandemic, the sector was resilient. However, this does not mean it can completely avoid experiencing another recession.
During the peak of the coronavirus pandemic, the sales of cannabis products increased by almost 50%. However, this has raised concerns about the potential over-investment in the industry. This could affect the financial position of certain stakeholders, who heavily financed the sector during that period.
According to experts, the cannabis industry could weather the coronavirus pandemic because many people had money from the government’s stimulus checks. They also believed that the prevalence of social restrictions affected the use of marijuana.
Effects of a Recession
Despite the positive effects of the past few years, the lack of federal legislation regarding regulating the cannabis industry is still a major concern for the sector. Since the decriminalization of marijuana is a vital part of the industry’s survival, the lack of progress on this issue could cause the sector to experience negative effects.
Another major concern for the sector is the lack of licenses in several states, such as New York, Florida, and New Jersey. This has caused the marketplaces in these states to have lower competition and higher prices. Despite this, experts believe these regions are more resilient to economic crises than their more mature counterparts, such as Oregon and Colorado.
Moreover, the rise of the illicit market is another potential threat to the cannabis industry. Since the economy strains consumers’ wallets, many people will look for ways to save money by purchasing illegal marijuana. This could negatively affect the legal industry and the revenue generated by it.
Although it’s impossible for an industry to avoid a recession, certain sectors, such as the marijuana industry, can still ride out the next one by adapting to the changes brought about by the economic slowdown. This is why it’s important for companies in the sector to evaluate their positions and adjust accordingly.