Ridiculous taxes, labor shortages, and excess regulatory red tape…that’s really the only way to describe California’s current marijuana industry. Let’s be clear though, while these issues are happening in California, to our local growers and supply chain, the problem is felt throughout the country, even globally.
That’s because California is responsible for producing a lot of the national Cannabis supply. Not as much as in recent years, but still a significant amount. Unfortunately, it’s impossible to determine just how much legal cannabis comes from the state because it’s a secret – an honest-for-goodness, intentionally kept, State secret.
This isn’t doing anyone any favors either; by hiding the numbers, the real data, the system is hurting the industry. As Forbes points out, all other Cali agricultural sectors from wine grapes to almonds are expected to share their data. This is because; without the information, business owners, venture capitalists, regulators, and manufacturers wouldn’t know how much to invest, or what returns to expect. The industry would collapse (as some think the cannabis industry might be in California).
The crazy thing is that this isn’t even the most detrimental thing to the cannabis industry right now; the supply Supply Chain Issues and labor shortages are. The global supply chain issues are affecting almost every industry. In cannabis, it’s not just the growth of the plants that are suffering, but the ancillary sector and even non-plant touching companies such as those who produce lighters or the glass used in vaporizers.
This article is exploring the constraints that are gripping the California and national cannabis trade.
Costs Are Up
I’m sure you’ve noticed how expensive everything has gotten in the last year. From produce to jewelry, to pens and paper, all the prices (except maybe travel) have increased dramatically since the pandemic. A great example is the cost of container shipping. It used to cost about $3000 to ship cannabis in a container from India to the US. Since the pandemic, that cost has increased 733%, to $25,000.
This is one of the highest rates of inflation we’ve seen recently, so while it does seem extreme, it is realistic and just one of many price increases we’ve faced. In fact, the U.S. Consumer Price Index increased 6.8% year-over-year. That caused inflation to reach a 39-year high.
Labor Is Down
You would think since everything is costing way more than it used to that there would be more people in the job market… that’s not the case though. At the beginning of 2022, the US Department of Labor released the Bureau of Labor Statistics. This 43-page report shows us that more people are working now than there were a few months ago, but the post-pandemic labor shortage is still a problem.
Similarly, with the rising costs discussed earlier, the labor shortage is a nationwide problem. A perfect (out-of-state) example is the Nirvana Group. Based in Tulsa, Oklahoma, this medical marijuana company’s operations include a 30-acre cultivation and extraction facility. In the fall the company needed to harvest 80,000 plants, typically cutting down about 2,000 a day. The organization wasn’t able to hit those numbers though because of the labor shortage. It’s not clear yet how much money Nirvana Group lost from unharvested plants, but last estimates projected a $500,000 loss.
Parts And Materials
There are a couple of detrimental aspects worth considering when purchasing parts and materials now. As you’ve probably noticed, everything is expensive. From mechanical parts to packaging, most materials are two to three times higher than they were before the pandemic. Additionally, some materials can’t be found and organizations are scrambling to find cost-effective alternatives.
The other concern with materials is actually the opposite of the shortages we’re facing, it’s an oversupply of marijuana flower. This has caused California to cut into sales because of the reduced prices and demand for seeds.
These two considerations helped local cannabis producers sink their profit margins by an average of 80% across the state last year. However, as we mentioned earlier, everyone, in every aspect of the cannabis supply chain issues is experiencing shortages. One of the biggest global shortages/price increases was copper. Copper is used with many ancillary companies in the cannabis industry, as well as many other manufacturers including the automotive industry. That’s why demand – and price is so high, copper is actually three times more expensive than it was a year ago.
The Search For Supply Chain Solutions
Cannabis producers have already started searching for packing alternatives. WIth the costs of paper, plastics, and corrugating increasing an average of 40% last year, creativity is a must.
Some California producers are buying raw materials in bulk for simplified packaging, which is helping to lower costs. Others are also redesigning their packaging and switching to American organizations to create and deliver their containers. Shipping within the continental US has increased, but not as much as shipping from overseas. A hidden bonus in all of this is that more materials are being made in the US, which will help create jobs.
The way business has been conducted is changing as well. It’s nice to see some cannabis companies building partnerships to help share supply chain issues expenses. Organizations are also upping their benefits for employees. To help attract labor, we’re seeing companies offering medical, dental, and a 401(k) plan. They’re also taking significant measures to keep their employees safe and healthy in the workplace.
The cannabis industry has always been innovative, especially in California. We’re going to need that creativity to move forward into profitable territory again. The problems we discussed here aren’t just in California, they’re global issues; we’re going to have to keep forming partnerships and finding ways to work together.
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