Coronavirus is having a devastating effect on many industries in the United States and across the globe.
For example, millions of US citizens are canceling travel plans and that is crushing US airline industry revenue. That’s why the US airline industry just asked for a $50 billion financial bailout from the federal government that would be three times the size of the airline bailout after September 11.
This big drop in sales is causing a lot of pain for shareholders. Airline stocks have been getting hammered.
United Airlines Holdings Inc. (NASDAQ: UAL) is down 75% from the 52-week high, much worse than the S&P 500’s 30% decline from the 52-week high.
However, not all industries are struggling right now. In fact – some are thriving.
Cannabis sales have been one of the few bright spots while most industries are in a tailspin.
US and Canadian cannabis dispensaries are reporting record sales since the coronavirus began to spread in North America.
Here are some more details from the hollywoodreporter.com.
The Sherbinskis dispensary on Fairfax, California, which has partnered with Post Malone in the past, is having its best week ever in sales and delivery is busier “than ever before,” the shop reports.
As for Caliva (Jay-Z is its chief brand strategist), its delivery business is seeing double-digit growth in March so far. “We have seen an increase in our delivery services across all of our locations, with record-breaking sales over the past two weeks,” says president Steve Allan.
Canada is seeing the same trend in cannabis sales.
Here are some more details from mjbizdaily.com.
Cannabis stores in Ontario and Alberta reported “unprecedented demand” as the country hunkers down to fight a worsening coronavirus outbreak, industry sources say.
Spiritleaf CEO Darren Bondar said his 46 stores “experienced an unprecedented demand for cannabis over the weekend with sales up 20% over the previous one and a record number of customers served.
“The supply chain remains in place, stores are stocked and we have seen an uptick in edible purchases.”
As you can see, while many industries are seeing sales crumble during coronavirus – the cannabis industry is actually seeing increased demand.
Why The Cannabis Demand is So Important
Cannabis sales are acting similar to tobacco and alcohol sales during a recession. This is important for two reasons.
In the Short Run, Cannabis Stocks Should Be Quick to Rebound
Cannabis stocks have definitely been struggling in the weak market. For example, Canopy Growth Corp (CGC, WEED) is down 55% in 2020 while the S&P 500 is down 28%. That steep decline has been particularly frustrating because cannabis sales have been strong. However, I expect the strong sales data to give cannabis stocks a big boost and strong rebound when the broader stock market recovers.
In the Long Run, Cannabis Stocks Have Huge Potential
Cannabis companies fall in a unique category with tobacco and alcohol companies. These sectors have delivered enormous returns to shareholders. In fact, Tobacco stocks have had the best returns out of any sector since 1900.
Here are some more details from cnnmoney.com.
Credit Suisse published a report this week on the performance of every major American industry from 1900 to 2010. One dollar in the average American industry was worth $38,255 by 2010. That’s an annual return of about 10% per year. Then there’s tobacco, which was in a league of its own. One dollar invested in tobacco stocks in 1900 was worth $6.3 million by 2010. That’s 165 times greater than the average industry. During a century of innovation, progress, excitement, and scientific advancement, no industry did better than cigarettes.
This tells me that even though cannabis stocks have been struggling for the last year, the sector still has huge potential in the long run as it matures and gets past some of these growing pains.
The Big Picture on Cannabis Stocks and Coronavirus
Cannabis stocks have taken a big hit with coronavirus as investors have shifted away from growth stocks and into more defensive ideas.
However, recent sales data is showing that cannabis sales have actually spiked during the coronavirus outbreak. That is important news.
In the short run, the strong sales should help these stocks rebound when volatility dies down. In the long run, being immune to recessions should be great for the cannabis industry. That trait has helped the tobacco sector deliver the best returns in the entire stock market since 1900.
Michael Vodicka owns shares of Canopy Growth Corp (CGC, WEED).
About the Author & Cannabis Stock Trades
Michael Vodicka is an equity analyst with more than 20 years of experience trading and investing. His research has been featured in some of the industry’s most respected publications. He has been investing and leading investors in the cannabis sector since 2013.