Supply Chain Challenges Are Forcing Industry Innovation

Two years after the onset of a deadly pandemic, supply chain disruption remains one of the most frustrating issues across all industries. Between antiquated technology, worker shortages, and a major uptick in online orders, ports in the United States are overburdened, and delays are expected to continue for a while.

Retail sectors must plan ahead and invest in their supply processes more than ever before — and these changes are likely to have a revolutionary effect on how the cannabis industry operates from now on.

If supply chain history has taught retailers anything, it’s that any disruption in routine will have a domino effect, with results ranging from mildly inconvenient to catastrophic. For the cannabis industry specifically, setbacks have proven vexing, to say the least, especially considering how much the market has grown in the past two years due to expansion of legalization, a shift from brick-and-mortar to digital sales, and an increase in consumption nationwide. Rather than merely keeping up with demand, supply chain operators have been forced to innovate to meet the needs of an ever-expanding market.

“Consumers consumed more cannabis during pandemic-fueled times of doubt,” said Alen Nguyen, chief executive officer at business-to-business ecommerce brand MainStem. “In fact, about 25 percent of consumers reported an increase in consumption during lockdown. That puts more demand on a growing market. All these issues come to a head at the supply level, where we saw evolution of how consumers are purchasing now: largely online.”

The cultivation sector hasn’t been affected as dramatically as other parts of the retail supply chain — a rare beneficial side effect of the plant’s federally illegal status. Since cannabis products are prohibited in interstate commerce and international trade is completely out of the question, the disruptions were relatively mild.

“On the other hand, things like lighting, technology, child-resistant packaging, pre-roll cones, vape cartridges—all the things that boomed during the commercialization of the industry — are what’s manufactured overseas,” Nguyen said. “That’s where the biggest bandwidth issue is around the supply chain — those ancillary products.”

DIZPOT, an Arizona-based resource for packaging supplies, has run into similar roadblocks. “A lot of these issues started with COVID — a lowered number of laborers and a decreased capacity for international locations like China, which is a huge supplier of packaging for all industries,” said cofounder and Chief Operating Officer Jeff Scrabeck. “This is still having a ripple effect throughout our industry, causing unprecedented delays on both ends. The [transportation] cost has gone from about $5,000 per shipping container to almost $25,000. We’re beginning to see this softening a bit, but shipping companies definitely have raised prices very fast and are lowering them very slowly.”

According to Scrabeck and cofounder/CEO John Hartsell, retailers must prepare for lags in production even under the best of circumstances, but the pandemic added another layer of complexity to the process. “The pandemic compounded what regular problems already traditionally exist in logistics,” Hartsell said. “There are domestic and international holidays affecting the global supply chain on a regular basis, so operators were already expected to plan ahead in their orders.”

Hartsell cited East Asia as an example, noting ports in the region operated at 50-percent capacity as COVID’s Delta variant spread. The reduced capacity compounded delays. When international ports operate on even a limited scale, they still tend to be more efficient than those in the U.S. for a few noteworthy reasons.

“Our American ports have been stifled by politics,” he said. “As a result, we haven’t been updating and upgrading to new technologies necessary to streamline the process. Furthermore, we started to see online shopping explode during the pandemic. When people stopped buying toilet paper at their local Safeway and turned to Amazon instead, we saw a capacity issue. Overnight delivery [from Amazon] used to be a guarantee, but not anymore.”

Although pandemic-related supply chain setbacks proved devastating for a number of industries around the world, the rise-and-fall pattern is quite common for most retailers. However, since the cannabis industry is comparatively young, operators aren’t yet accustomed to planning ahead for unforeseen issues. But they can learn from pandemic experience in order to prepare for a more streamlined future.

Nguyen explained the setback from the perspective of consumer packaged goods (CPG) companies like Walmart, Target, and Walgreens. “These guys have been doing this for sixty years or more, so their supply chain is very well established. They’re accustomed to dealing with the ebbs and flows of economic woes,” he said. “While they’re still impacted and having to work through the issues, they have a long history of planning and understanding. The industries most impacted by supply chain issues are smaller ones like wellness. Cannabis is growing, but it’s still relatively small compared to the CPG industry.

“Proper planning prevents poor performance,” he continued. “While the supply chain is ramping back up, operators can focus on transparency, really understanding what their demand is before they start planning. That’s what this industry is still learning. When we talk about the supply chain, you need to plan out at least three to six months in advance. That planning period will go a long way” toward ameliorating the effects of future setbacks — and setbacks are inevitable.

As stressful and confusing as the current situation is, the industry may find it a useful lesson that results in a different, potentially better way of tackling an essential element of the process. “Operators do know what they need to do, but the challenge is they’re growing so fast and acquiring so many companies they don’t have the proper data tools to be able to understand all the information they have spread out everywhere,” Nguyen said. “These large operators, while they are big entities with growing revenue and great teams, are still operating like individual grows or dispensaries because that information isn’t manageable at an enterprise scale.”

Nguyen predicts data collection and analysis will evolve rapidly now that most industry players have grasped previously unrecognized ways it can impact their business. “We’re getting to a point where data, solutions, and technology really will help the industry’s maturity move forward on the demand side,” he said.

Cannabis has been operating in the shadows for so many decades that many legacy operators are accustomed to conducting business in a traditionally unorthodox manner — but those days are gone, at least for companies that hope to grow. Operators no longer can afford to maintain low-tech, labor-intensive systems.

“The industry is still maturing and evolving, and businesses are evolving with it,” Hartsell said. “For example, we have a new platform that allows anyone moving product around the world or across the U.S. to see exactly where it is, what’s happening with it today, where it’s moving to, and when it’ll land at their door.”

He also predicted an emerging trend in the CPG industry — sparked by pandemic-related supply chain snafus — very soon will impact the way cannabis companies transport goods. Big players like Walmart and Amazon are building their own transportation fleets to move product, significantly reducing dependence on outside shippers.

“The rest of the world will follow suit,” Hartsell said. “Owning our own transportation and not having to lease other people’s property to move goods” will have a dramatic impact on bottlenecks.