The Biden Administration is Grappling with a Burgeoning Gun Industry

As Coronavirus swept the country in 2020 – and as civil unrest became a major talking point in the Presidential election – gun sales skyrocketed. The FBI says it processed nearly 40 million background checks – 10 million more than 2019 and more than any year on record. A record-setting 8.5 million of those gun sales were transacted by first-time buyers, according to the National Shooting Sports Foundation. Some data suggests that up to 40% of purchases went to new buyers. It was previously “anti-gun” demographics – young adults, those who politically identify as liberal, and minorities – who became gun owners in the face of uncertainty and civil strife.

The Coronavirus pandemic shot the proverbial starting gun that began the rush to firearm ownership in March 2020. Police officers became infected with the virus, departments stopped responding to some 911 calls to prevent the spread, and discussions of releasing inmates led to concerns of personal safety during the pandemic. Historically, gun sales rise during presidential election cycles, and the inevitable discussions about firearm ownership and new gun control continued driving sales through the year’s end and into fiscal Q1, 2021. The NSSF reports that in 2020 the firearms and ammunition industry was responsible for as much as $63.48 billion in total economic activity. That’s in addition to a record-setting $19.3 billion in industry wages recorded last year, spread across an estimated 342,000 jobs.

 All this sums up one theme for this year and at least the next three: The gun industry is burgeoning, even contributing to economic recovery and it’s buoyed by new buyers and low supply which is, counterintuitively, driving demand for guns and ammo even higher. Couple this with a Democratic President who on the campaign trail promised “common-sense gun reform,” and you wind up with firearm manufacturers and retailers simultaneously seeing unprecedented sales while anticipating potentially dramatic restrictions being placed on the very goods they sell. Experts agree that gun sales, while not as high as 2020, will remain elevated throughout 2021.

As Americans receive their Covid-19 vaccines and the country begins a return to some sense of normalcy, it is now Biden’s recently announced gun control proposals and a shortage of manufacturing material that is keeping demand for guns high. The president’s proposals, if implemented, would constitute a major reduction in total manufacturing and job loss in the gun sector: Biden announced his wish to reinstate the 1994 assault weapons and high-capacity magazine ban, which expired in 2004.

The ban would target weapons like the AR-15, which many consider to the most common sporting rifle now sold in the U.S. The NSSF estimates that around 20 million models of the rifle are currently owned, with millions more produced and sold each year. Biden went a step further with this second iteration of the ban, targeting AR-15 build kits and part skits. Although the administration has suggested existing owners would get to keep their firearms, passage of the ban would effectively end the sale of the rifle and many other semiautomatic rifles that now comprise a large portion of annual gun sales in the U.S.

Some of Biden’s more impassioned gun control promises make reinstatement of an assault weapons ban look mild: On the campaign trial, the President expressed his intent to effectively shutter the entire online firearm and ammunition sales market. Although figures aren’t available, many gun shop owners have commented the bulk of their sales are now conducted online. If Biden’s plans were implemented, this would eliminate a significant portion of the more than $13.5 billion in annual revenue the gun industry rakes in each year.

At least some version of this campaign promise is being reviewed by the Bureau of Alcohol, Tobacco, Firearms and Explosives (BATFE) at the direction of the current administration: ATF officials are reviewing the definitions of a firearm currently applied to enforce federal gun laws and ATF policies, with expectations of “enhancing” such definitions to affect a ban on certain gun-making kits and firearm receiver blanks.

With retail gun dealers and brick-and-mortar stores all but hosting empty shelves, gun owners have turned to fabricating their own firearms using components that, individually, are not considered firearms. It’s a practice little known to anyone but enthusiasts until recently, though long held to be legal under the Gun Control Act of 1968. Any individual who may otherwise legally own a firearm can assemble, for personal use only, a firearm “from scratch.” Often using receiver blanks called 80% lowers, amateur gun builders have fabricated these components into working receivers to build firearms at home for years. But with more gun owners turning toward the practice in a market that’s been dry on ready-to-buy retail guns for months, the Biden administration is seeking their prohibition.

Inversely, all the talk of prohibition has simply caused more gains in the industry’s market, particularly for investors. After Donald Trump took office in early 2017, the market saw a three-year slump. It was only in 2020 that background checks surpassed all prior years’ data and for investors, it has been a boon. Smith & Wesson Brands (NASDAQ:SWBI) reported sales surging 141% in Q2 2020, bringing in $229 million. Gross profit margins expanded 330 basis points (3.3%) to 42%. Sturm, Ruger (NYSE:RGR) saw an increase in sales of 53%, with earnings per share shooting up by five times to $1.39 per share.

The ammunition sector is seeing gains, too. Vista Outdoor (NYSE:VSTO) who owns Federal and Remington ammo brands, are seeing sales surge by 26% or more. Olin (NYSE:OLN) who owns Winchester, says that sheer volume and the better cost of goods sold it brings caused profits to soar 51%.

Whether the firearm industry continues to balloon is thus entirely dependent on the Biden administration’s success in implementing its gun control proposals – and whether (or really, how much) the market shrinks if any of the president’s proposals make it through ratification and the inevitable appeals.