California Marijuana Companies Feeling Supply-Chain Strains

california supply chain issues cannabis

As California marijuana companies feel the strains of labor shortages, regulatory tape, and high taxes, they now must deal with supply-chain gridlock. Many find themselves reassessing and revamping their procurement strategies as their margins continue to dwindle.

These constraints have been problematic for the global economy for some time now. They’ve been the result of pandemic-fueled labor issues, product delivery and shipping delays, and rising prices on raw materials, fleets, utilities, and equipment.

“Everything is costing a whole lot more, especially on the industrial side,” said Will Brophy, head of operations at Nabis, a cannabis wholesale distributor located in Oakland.

One instance, in particular, portrays just how problematic the situation has been with supply-chain problems. Las Vegas-based Hara Supply has observed container shipping costs from India rise from $3,000 pre-pandemic to $25,000, showcasing a massive 733% increase.

With inflation accelerating nationally, this price surge should come as no surprise for many.

The U.S. consumer price index rose 0.8% during the month of November and 6.8% year-over-year. This pushed the key inflation gauge of services and goods to a 39-year peak.

Between the logistics issues and rising costs, cannabis business operators are feeling the pressure. However, California has been the most impacted by these increases. Beyond 40% of the country’s maritime imports come in through the ports of Los Angeles and Long Beach.

Nabis is facing even higher costs for its third distribution center the company plans to open over the summer. This planned hub will be an 86,000-square-foot facility located in the Central Valley. It will nearly double Nabis’ warehouse spaces in Oakland and L.A. combined.

Other California cannabis business operators are feeling the supply-chain pressure, too. Atlas Seed, a cannabis seed supplier based out of Sonoma County, noticed its margins falling over the last year as a result of rising material costs.

“Some materials are now twice as expensive or nearly impossible to procure, from packaging materials to drip tape for our irrigation systems,” William Hancock, the co-owner and sales director at Atlas Seed, told Marijuana Business Daily.

This all comes as an oversupply of marijuana flower in Cali has decreased seed demand and prices. In 2020, the company was still able to make between 70% and 80% profit margins. However, last year, the profit margins dropped an average of 80%.

Copper prices have also risen. The price tripled in the middle of 4Front Ventures’ construction of its L.A. suburb of Commerce-based 170,000-square-foot cultivation and processing plant. This Phoenix-based multi-state operator has also observed vape hardware shortages for months, along with prolonged shipping delays at the ports.

“There are these massive unforeseen shipping delays,” explained Josh Krane, 4Front’s vice president of operations in Cali. “I have machines waiting, I have packaging waiting. I have everything but raw ingredients for edibles waiting in those ships right now.”

Ancillary companies like San Fran-based InSpire Transpiration Solutions are also feeling the pressure. The company specializes in heating, air conditioning, and ventilation systems.

While this company’s supply chain is mainly domestic, it’s been coping with global parts shortages. Mainly, they’ve had trouble getting the microchips condenser fans and programmable controllers use.

Chief Operating Officer for InSpire said that pandemic-related factory closures, suspensions of service guarantees by some of the country’s largest delivery providers, and truck driver shortages have caused delays for the company’s pickups and deliveries throughout the year. This has made it challenging to set clear expectations for their clients.

Has your cannabusiness suffered from these shortages? What has your experience been like operating throughout the pandemic? Let us know in the comments below!

Author:
Louis Levey is the Content Success Manager and Founder at No Strings Content. He's passionate about helping cannabis businesses use content to attract, educate, and convert audiences. His hometown is Boca Raton, Florida, but he currently lives and works remotely in Chiang Mai, Thailand.

Leave a Reply

Your email address will not be published. Required fields are marked *