The Coronavirus has led to a major slowdown in China’s economy, and this has affected quite a number of industries. The country is almost infamous for producing tons of cheap raw materials and hardware, and industries that rely on it are feeling the pressure as a large number of factories see reduced or even zero production. The hemp sector is no different, and most hemp companies are likely to feel the fallout from the Coronavirus.
The economic shock has reverberated throughout the entire world, and a certain cadre of U.S. cannabis firms may be adversely affected. Firms that sell CBD vapes, for instance, may soon run out of parts, especially if they didn’t have any stockpiles.
“It’s a huge wake-up call,” says 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 vendors? Everyone was looking for the cheapest option forever, and that’s China.”
He states that although many companies still haven’t felt the effects of the economic slowdown, the interconnectedness of the supply chain has convinced him that nearly everyone in the industry will be affected in some way.
“It’s going to hurt everyone, especially low-cost crappy vape companies, hardware companies, anyone that’s undercutting big brands, anyone who does their manufacturing in China, it’s going to hurt them all,” he says.
According to Asa Waldstein, a contract manufacturer in Boulder and Chairman of the Cannabis Committee at the American Herbal Products Association, the manufacturing and processing spaces will likely get hit the hardest.
“There is limited glass and plastic bottle manufacturing in the U.S., so this outbreak will likely cause a delay in these items commonly used in the hemp and cannabis sector. This also includes graduated droppers, lids, and other custom packaging such as sachets, labels and shrink labels.”
He adds that the outbreak can hinder international hemp market expansion as some investors flying to meet new hemp companies may push off their travel plans.
However, the virus has provided an opportunity for American sellers to step in and fill the shoes left by Chinese companies. “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,” says Morgan Fox, Media Relations Director of the National Cannabis Industry Association.
According to Easley, he sees the outbreak as an opportunity for U.S. CBD companies to “do something when they don’t have massive competition.”
“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, hold them and know that most of the public market impacts, you’re not going to see that into the next quarter.”
Experts believe that major hemp sector players in North America, such as HTC Extraction Systems (TSX.V: HTC) (OTCQB: HTPRF), may already be gearing up to snatch any opportunities that the Coronavirus outbreak in China presents.
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