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Ontario pot shops can open during COVID-19, virus-related layoffs begin

TORONTO, ON - APRIL 1: Cannaibis educator Jonathan Hirsh smokes a joint he purchased outside the Hunny Pot Cannabis Co. store at 202 Queen St. W. (Andrew Francis Wallace/Toronto Star via Getty Images)

“Cannabis stores and cannabis producers” are on Ontario’s list of workplaces permitted to open under the province’s order to close non-essential businesses. It’s a win for a sector facing tough times long before COVID-19 threatened the global economy.

Ontario’s list of “essential workplaces” released on Monday evening ranges from hospitals and grocery stores to mine sites and moving companies. Premier Doug Ford said the province’s closure order will be effective Tuesday at 11:59 p.m., and will be in place for at least 14 days.

“This is great news for the [cannabis] industry and consumers alike. A great number of licence holders are based in Ontario,” Deepak Anand, industry commentator and CEO of the Toronto cannabis firm Materia Ventures, told Yahoo Finance Canada.

“Had the Ontario government decided to not classify them as essential workplaces, it would have had far-reaching negative consequences for the entire industry.”

Ontario currently has about 50 physical stores, and is home to a number of major licenced producers. The province joins others such as Quebec and British Columbia opting to allow pot shops to remain open. Prince Edward Island has shut down its liquor and cannabis stores in response to the virus. 

Some private retailers, such as Canopy Growth-owned (WEED.TO)(CGC) Tokyo Smoke, have closed stores. Others have responded by reducing working hours and offering “click-and-collect” service.

The provincially-run Ontario Cannabis Store is among several pot retailers and distributors that have reported an uptick in sales as consumers stock up in response to COVID-19. OCS said it received almost 3,000 orders on a recent Saturday, 80 per cent more than average. 

Meanwhile, the economic toll of COVID-19 is rippling through Canada’s cannabis industry. New Brunswick-based Organigram (OGI.TO)(OGI) announced Monday that its workforce will be materially reduced as a result of voluntary and company-imposed temporary lay-offs to facilitate social distancing while the COVID-19 situation lasts. Toronto-based medical cannabis company FSD Pharma (HUGE.CN)(HUGE) also announced Monday plans to scale back cultivation, and has implemented a furlough policy for workers.

Ontario’s greenlight for budtenders to continue serving customers in person comes as the industry asks for a share of Ottawa's $82-billion economic aid package for businesses impacted by the COVID-19 pandemic.  

In a letter to Industry Minister Navdeep Bains and Finance Minister Bill Morneau, more than 70 cannabis industry professionals asked for access to subsidies being made available to small businesses. The group, which includes representatives from Fire & Flower (FAF.TO), Organigram and WeedMD (WMD.V), said Export Development Canada and the Business Development Bank of Canada (BDC) have indicated they will not extend access to the recently announced $10 billion in stimulus funds. 

Last week, BDC spokesperson Jean Philippe Nadeau told Yahoo Finance Canada that BDC is developing details on how the program will work, and will share an update in the coming days. He declined to specify which sectors will be allowed to participate. 

Dan Sutton, chief executive officer of B.C.-based cannabis producer Tantalus Labs, told Yahoo Finance Canada that a BDC senior account manager directed him to seek support through Farm Credit Canada. That agency has encouraged producers to reach out by phone, and promised to share more details on support for the industry.

Unlike stronger segments of Canada’s economy, cannabis businesses had been downsizing prior to the COVID-19 pandemic. Earlier this month, Canopy Growth laid off about 500 staff as it closed down two large B.C. cultivation facilities. In February, Aurora and Tilray (TLRY) pared back their respective staff. 

Ontario’s decision to allow pot shops to remain open, and COVID-19 panic-buying, are welcome tailwinds for the struggling sector. However, Canaccord Genuity analyst Bobby Burleson expects the benefits of a virus-driven sales boost will be short lived.

“We are seeing near-term strength on the retail front as customers stock up on cannabis ahead of uncertainty. This strength has benefitted wholesale as well. Nevertheless, management teams are girding for potential significant weakness in calendar Q2,” Burleson wrote in a research note. 

“The average stock price for our covered companies has declined 52 per cent in the past month on escalating COVID-19 concerns.”