How a Recession Could Impact the Cannabis Industry

How a Recession Could Impact the Cannabis Industry

The US Federal Reserve’s decision to hike interest rates to help combat inflation amid a shrinking US economy in the first quarter of 2022 has spurred fears of a recession.

These fears have intensified in some quarters following the release of the latest estimates from the Federal Reserve Bank of Atlanta’s GDPNow model for the second quarter which projects a second consecutive period of negative economic growth. If this holds true, the US would officially be in a recession.

According to Gallup’s Economic Confidence Index, we are at our lowest point since the final days of the Great Recession between 2008 and 2009.

Goldman Sachs, meanwhile, believes the worst is yet to come. It forecasts a 35 percent chance of the country falling into a recession within the next two years. Morgan Stanley is even less optimistic. It puts the odds of this happening at 50-50.

While it’s impossible to say whether we will see a recession any time soon, or how it would pan out and for how long, what might such an event mean for the marijuana industry?

In a similar way to alcohol, cannabis is often characterized as being ‘recession-proof’. This is to say that consumers will continue to buy marijuana even when times are tough and prices swing dramatically.

This isn’t strictly true, but anecdotal evidence does indicate demand for cannabis is inelastic, but not to the extent of, say, prescription drugs.

As for the stock market, we’re currently in a bear market as indicated by the S&P 500 losing more than 20 percent of its value since the beginning of 2022. Typically, these stocks return somewhere around 10 percent per year, dividends included.

Cannabis stocks, meanwhile, have dropped by around 30 percent since the turn of the year. Could things get worse?

The past five bear markets lasted an average of 265 days with an average portfolio loss of 22.76 percent. If the US falls into a recession now and marijuana’s relative resilience to price swings and a loss in consumer confidence holds true, we might expect little to change with cannabis stock values for the next nine months or so. After that, from April 2023, they may start to increase but it could take as long as two years to recover to the heights of 2021.

About Brian Ellis

With 6 years' experience in business journalism, Brian is the person we turn to for anything related to the business of cannabis. His news coverage spans topics including marijuana business and finance. Brian's work features on, and