Over the past week, Americans have watched in disbelief as people filled plastic bags, laundry baskets and tupperware containers full of gasoline as fear over gas supply created massive hysteria across the country. The hacking of the Colonial Pipeline proved failures in both supply chain and cybersecurity, while also highlighting a common theme since COVID vaccine rollouts: Almost all commodity prices are higher than they were before the pandemic. According to Worldbank, global economic recovery has caused massive gains across all major supply chains, however, outdated infrastructure and distribution channels are suffering while prices continue to increase. Among these commodities, often overlooked by major business outlets, is cannabis and the ancillary supplies that go into growing, manufacturing and selling.
As of May 7, 43.2% of adults in the United States have access to adult use cannabis. * , almost doubling from the 22.5% in 2020. While big name brands are dominating certain markets in the United States and legalization continues gaining bi-partisan support, operators access to supplies at competitive pricing, in a timely manner, is beginning to suffer. Sure, supply chain disruptions in cannabis aren’t new. In fact, cannabis operators are constantly forced to pivot in the face of adversity to maintain business continuity. In 2019, the vape crisis halted vape sales across the US, and then in 2020, COVID shattered an already disjointed supply chain. However, today, between COVID relief and new legislation, the need for supplies is at an all-time high. So, what can operators expect? Higher shipping costs and increased overall COGS spending.
This is contributed to multiple factors. One, loosening restrictions on consumer access to cannabis among many states has created increased pressure for retailers to increase product production. Add stimulus check rollout and increased cannabis purchasing, businesses are now facing supply shortages. When going directly to the distributor, operators are now left with inaccurate wait times, wrong orders, or just overall confusion. This is due to distributors relying on decreased workforces, and lack of supply channels such as boats and trucks, as unemployment benefits are still at an all time high. Just in the past month, MainStem has seen wait times increase by three business days and shipping costs increase over 10%. And this is just the beginning of some real headaches for small business owners and cannabis operators.
Gordon Downes, CEO of the New York Shipping Exchange, an online cargo platform, said that larger businesses can often secure better shipping rates thanks to the size of their orders. Smaller ones, however, are at the mercy of spot rates and price increases. “Especially if you’re not in a really big shipper that has a very sophisticated negotiating process and a lot of leverage, you’re forced to accept these contracts,” Downes said. For example, you can imagine cannabis operators are now forced to pay increases in supplies with little to no data from previous years. Lack of industry leverage and sophisticated processes will hurt small businesses like cannabis operators if they do not begin to plan. Even Nike Inc. said revenue declined 10% in its latest quarter due to supply chain challenges. So, what can cannabis operators and other small business owners do?
Well, quite a bit. Unfortunately, cannabis operators are used to putting out fires, opting to spend less up front because of lack of capital and relying on vendor relationships for individual products. This model allows little room for competition and puts more pressure on the buyer compared to the supplier. It also makes buyers dependent on single supply chain infrastructure, causing unnecessary spikes in prices and expanded wait times during a crisis. As cannabis begins to grow into a larger industry, cannabis operators need to first invest in smart technology that follows standard security protocols and compliance. This will undoubtedly save them from cyber-attacks and technology mishaps. Also, they need to seek out smart purchasing platforms, like MainStem, that provide a holistic view of total spend and past purchases. Data will ultimately help cannabis companies cut excise spending, pivot in times of adversity and scale with an overall leaner spending model. By adopting a platform like MainStem, cannabis operators can also feel confident that they are receiving the most accurate and competitive price. MainStem, for example, uses aggregated data among all of its buyers to achieve competitive rates and place purchasing power into the hands of operators. Intelligent purchasing ultimately allows companies more control over supply-chain risks, by strategically allowing them to become more sustainable.
