Concerns looming over coronavirus impact on hemp industry, but some US firms could gain from fallout

Concerns looming over coronavirus impact on hemp industry, but some US firms could gain from fallout

(A version of this story appeared earlier on Marijuana Business Daily.)

Hemp companies of all stripes – from growers to retailers – are likely to join other global industries feeling the fallout from the coronavirus outbreak.

That’s largely because so much inexpensive cannabis hardware is made in China. It also stems from the economic shock the virus is inflicting on the world economy, industry experts said.

The quickly spreading virus has already arrived in the U.S., Europe and beyond, with documented cases of the illness growing all over Asian countries and upending public markets.

The main question is how and to what extent cannabis businesses will feel the impacts.

There will be several, industry experts predicted, mostly caused by temporary shutdowns of Chinese manufacturing plants. On the flip side, U.S. companies might be able to step in and fill the void.

The likely impacts on the hemp industry include:

  • Shortages of hardware manufactured in China, especially for cannabis vaporizers, as well as marijuana product packaging and specialty equipment for testing labs, extraction facilities and other businesses.
  • Shortfalls of raw Chinese hemp material being exported to the U.S. and elsewhere.
  • Financial ripple effects from the downturn in stock markets, further scaring off investors from cannabis.

“It’s a huge wake-up call,” said Nic Easley, CEO of Denver-based 3C Consulting. “It’s forcing companies to look at their supply chain. ‘Where do my products come from? Do I have multiple options for vendors?’

“Everyone was looking for the cheapest option forever, and that’s China.”

Will ‘hurt everyone’

While many companies haven’t yet felt the effects – and some might not at all, depending on their type of business and where they operate – the interconnectedness of the supply chain has Easley convinced that, eventually, nearly everyone in the industry will be affected in some way, all the way to cultivators and retailers.

“It’s going to hurt everyone, especially low-cost crappy vape companies, hardware companies, anyone who’s undercutting big brands, anyone who does their manufacturing (in China) – it’s going to hurt all of them,” Easley said.

The manufacturing and processing spaces will likely get hit the hardest, said Asa Waldsetin, a contract manufacturer in Boulder and chairman of the Cannabis Committee at the American Herbal Products Association.

“There is limited glass and plastic bottle manufacturing in the U.S., so this outbreak will likely cause a delay on these items commonly used in the hemp and cannabis space,” he told Hemp Industry Daily by email. “This also includes graduated droppers, lids, and other custom packaging such as sachets, labels (and) shrink labels.”

All hemp companies with global amitions, not just manufacturers, are going to see the effects, Waldstein said.

The outbreak “can hinder international hemp market expansion as some investors flying to meet new hemp companies may push off their travel plans.”

“Generally speaking the face-to-face interactions required to develop a lasting business relationship may be put on hold until travel is guaranteed safe.”

Possible silver lining

But Easley and others, including the National Cannabis Industry Association, noted there could be a significant silver lining in the coronavirus for American companies: They might be able to step in and fill the gap left by Chinese companies, and that could solidify their industry footprint for a long time to come.

“If we start to see shortages or restrictions on imported manufactured products like vape cartridges or growing equipment, we can only hope that domestic manufacturers will step up and offer the most competitive prices possible,” NCIA Media Relations Director Morgan Fox wrote in an email to Marijuana Business Daily.

“This could benefit them in the long run as well by helping to solidify relationships with U.S. cannabis companies.”

Easley noted that there are still a lot of small- to-medium sized cannabis brands that could take advantage of the situation, particularly U.S. hemp producers.

“The biggest thing I see is finally a break for U.S. CBD companies and hemp companies to do something when they don’t have massive competition,” Easley said.

“It’s also a moment for smaller companies that have lost their market share to China to step up, ramp up and focus on relationships at all costs.

“Get new clients now and hold them and know that most of the public-market impacts, you’re not going to see that until the next quarter.”

Fiber fallout

Hemp fiber manufacturers are especially impacted. They could run out of raw goods within weeks because of stalled shipments of raw materials from China.

“All manufacturing out of China has been delayed,” said Lawrence Serbin, owner of Hemp Traders, a Los Angeles company that makes fabrics, boards and rope from hemp fiber, 90% of which comes from China.

Serbin told Hemp Industry Daily that he’ll be OK for a month or two with the raw fiber he already has, but that if factories in China don’t reopen, “there could be some serious problems.”

However, Serbin pointed out that long-term production delays in China could help boost interest in fiber products grown in the United States, especially nonwoven products like construction compnents.

“Somebody was talking to me today, ‘Why can’t we have hemp here in America?’” Serbin said. “We don’t have much of a textile industry anymore.”

The coronavirus emergency is happening just as U.S. hemp producers are looking for better sales opportuities.

“Because more people are now interested in doing something with the fiber (of hemp), we may start seeing” more domestic fiber production, he said.

Waldsetin agreed, noting that slowed hemp imports could boost interest in things like domestically produced hemp plastics and compostable paper pouches.

“The carbon footprint on packaging shipped from China is astronomical,” he said. “Expected packaging delays will cause savvy entrepreneurs and investors to look closer at sustainable packaging made in the U.S.”

Bart Schaneman can be reached at [email protected]

John Schroyer can be reached at [email protected]

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