What Risk Does the Coronavirus Pose for Cannabis Companies?

In a note issued earlier this week, a cannabis analyst offered a look at issues investors should be aware of when it comes to the spread of the novel coronavirus in Canada.

Graeme Kreindler, equity research analyst with boutique financial institution Eight Capital, indicated that the highest areas of concern across the supply chain in cannabis are lighting in the cultivation sector and vape hardware as part of manufacturing.

As safety measures are put in place for the prevention of COVID-19, the disease caused by this coronavirus, the analyst also highlighted machinery and environmental control segments attached to cannabis operations as areas to monitor.

He said that concerns over lighting equipment and vape hardware are due to connections with manufacturing in Asia, primarily China.

“This comes at a time where vape sales are expected to ramp up given their recent launch in the Canadian adult-use market and a rebound in sales in the US, after concerns late last year on vape-related illness,” Kreindler said in his note, according to a report from BNN Bloomberg.

Vape sales have become increasingly significant for companies given the recent second stage of legalization in Canada.

“Virtually all vape hardware manufactured in China per our discussions with operators. Build-up of inventory post-vape crisis could mitigate some risk. Tight capital conditions not conductive to every operator being able to build up and sustain large inventory positions,” the analyst wrote.

Kreindler covers an array of Canadian cannabis names like Tilray (NASDAQ:TLRY), Aurora Cannabis (NYSE:ACB,TSX:ACB) and Canopy Growth (NYSE:CGC,TSX:WEED), alongside US firms such as Acreage Holdings (CSE:ACRG.U,OTCQX:ACRGF) and Harvest Health and Recreation (CSE:HARV,OTCQX:HRVSF).

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: Acreage Holdings is a client of the Investing News Network. This article is not paid-for content.