Colorado marijuana companies take a hit from global supply-chain issues
โOn top of a very, very heavy regulatory load, this is just one more thing for this industry,โ says Truman Bradley of the Marijuana Industry Group
By MEGAN ULU-LANI BOYANTON | mboyanton@denverpost.com | The Denver PostFebruary 18, 2022 at 6:00 a.m.10
Coloradoโs marijuana companies arenโt immune to the supply chain disruptions testing industries worldwide, with some feeling the squeeze on packaging, nutrients and more.
โCannabis is no different than any other industry,โ said Matt Jacobs, vice president of operations at Veritas Fine Cannabis. โWeโve got the same issues that other people do when it comes to the supply chain right now.โ
The coronavirus pandemic thrust the global supply chain into disarray, with overloaded warehouses, backlogged ports and labor shortages intensifying shipping delays. And the U.S. inflation rate continues to rise after hitting a 40-year high in December, the Bureau of Labor Statisticsโ Consumer Price Index reports.
All the while, businesses are trying to satiate consumer demand, including those in Coloradoโs marijuana industry. The sector saw over $2.22 billion in sales last year, breaking its previous record in 2020 at over $2.19 billion, the stateโs Revenue Department reported.
Truman Bradley, executive director of the Marijuana Industry Group, the trade association for the stateโs cannabis industry, said those statistics donโt tell the full story. Although the record-setting sales numbers are true, cannabis companies are subject to โextremely harsh federal tax rules,โ while also paying state and local taxes, he said. Therefore, supply-chain problems stretch these businesses even thinner, Bradley added.
โUnlike other industries that also face similar supply-chain issues, we are one of, if not the most highly-regulated industry here in the state,โ he said in a phone interview. โOn top of a very, very heavy regulatory load, this is just one more thing for this industry, and itโs a challenge.โ
To get products, such as pre-rolled joints, into the hands of a dispensary customer, they must first move through the cannabis supply chain, which can be broken down to the bare-bones phases of cultivation, manufacturing, distribution, transportation and retail, according to firm Berdon LLP. Marijuana wholesalers and retailers alike have undergone struggles to keep operations running smoothly.
Alex Levine, chief development officer at Green Dragon, emphasized the silver lining for the stateโs marijuana industry: Itโs โsomewhat of a self-contained supply chain.โ
The marijuana thatโs grown, the edibles that are manufactured, the concentrates that are extracted โ โeverything has to be made in the state of Colorado,โ said Levine, whose company runs 16 statewide locations. Still, other necessary components need to be shipped into the U.S., such as soil and equipment to grow or extract, and โeverythingโs taking way longer,โ he added in a phone interview.https://a63c332653ae137d1d6874f141449a8d.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
For instance, the average lead time to receive manufacturing equipment for edibles, which used to span three to four months, has prolonged to eight to 12 months, Levine said. On top of inflation, taxes and the swelling price tag related to shipping containers, โevery piece of this has gotten more expensive,โ he added. โWeโre essentially eating these increases so far.โ
Jamie Stephenson, CEO of Newt Brothers Artisanal, a family-owned and operated cannabis company, also highlighted the challenge of securing packaging materials in a timely manner, which he said have โconsiderablyโ boosted in price. He pointed to difficulties obtaining certain nutrients, which often come from China.
โOn some of the nutrients, weโve had to go and buy pretty much for the whole yearโ rather than incrementally throughout the the year, he said in a phone interview. โWeโre spending, of course, way more money up front than weโd like to.โ
Chaz Kobayashi, chief operating officer of High Level Health, noted that his company suffered a two-month delay on soil, because of lags in sourcing raw materials, such as peat and guano. High Level Health operates in both Michigan and Colorado, with four dispensaries, multiple grow operations, and a laboratory to manufacture infused products in the latter state.
After budgeting for buildouts in multiple states back in 2020, the volatility around supplies and prices โobviously throws some kinksโ in the construction process now, Kobayashi wrote in an email.
โIt is very difficult to organize a large construction project with accurate budgets and timing of completion,โ he added.
For Jacobs of Veritas, the disruptions go as far as getting basic items, such as coffee cups to stock production facilities, so it has required extra planning across all stages.