For the most part you can still craft potions, grenades and arrows and make a dinner from fish. Also you can craft basic weapons but they completely suck compared to drops/buying, especially from gareth and pig girl. Worst thing is no weapon/armor enhancements yet.
Dagger on branch doesn't create arrow shafts though so you have to buy those, unless you know how to edit itemcombos file and fix it. Add this.
use category Dagger on object LOOT_WoodenBranch_A with transform code Transform2 parameters WPN_ArrowShaft_A,0,0,0,0,0,3,1 autolevel 0 autoValue 0