Cultivating Supply

The challenges and potential of developing a cannabis supply chain

According to the Associated Press, the marijuana market in the United States was valued at $10.4 billion in 2018 with expected growth to $16 billion in 2019. This, with only 10 states and Washington, D.C., having legalized recreational marijuana (along with 23 states that allow medical marijuana). Such growth requires the creation of an efficient supply chain — a feat that’s not easily accomplished when dealing with a product that had been illegal and distributed underground for decades.

From providing products and places to grow and store cannabis as well as the logistical support needed to get the product from grower to consumer, a new supply chain is emerging in states where marijuana is legal. Developing a reliable cannabis supply chain proved necessary following the shortages Canada faced when it became the second country in the world to legalize recreational marijuana on the national level on Oct. 17, 2018.

Opportunity Abounds

As investors seek to get in on what some are calling the Green Rush, many companies are seeing their values spike after simply flirting with the idea of being part of the cannabis craze. To illustrate this point, Seaport Global analyst Brett Hundley told Reuters of being on a conference call and asking the CEO of chemical manufacturing company Balchem about involvement in the cannabis sector. Hundley explained, “I literally watched the stock jump 2 percent from the time I asked the question to the time he answered it.”

It’s not just stock value that intrigues companies. Scotts Miracle-Gro has been leveraging its well-known brand along with its acquisition of hydroponics companies such as AeroGrow and Can-Filters to make it one of the cannabis industry’s top suppliers of marijuana growing equipment from fertilizers to lights, and more. Scotts has since seen its sales numbers as well as its share value skyrocket.

Acology, Inc. is another established company that has found success in expanding into the marijuana supply chain. Its MedTainer™ — which was originally developed to safely store pills and grind them up for patients who had difficulty swallowing whole pills — has become a popular package for cannabis which can be safely stored in its child-proof plastic with a self-contained grinder. A whole new revenue stream has opened up for the company as it now sees itself in the same market as companies that are solely dedicated to being a wholesaler of an assortment of marijuana containers, such as Kush Supply Co.

Keep on Truckin’

Despite the excitement from investors and entrepreneurs looking to make some money in the cannabis industry, the fact that marijuana remains illegal at the federal level stunts the industry’s growth, or at the very least creates logistics problems. Not only are FDIC insured banks unable to do business with cannabis companies, freight trucks that the Department of Transportation regulates are also unable to carry marijuana. The result is a lot of cash and marijuana that needs secure transportation.

Fortunately for many of the states that were the forerunners in the legalization of recreational marijuana, dispensaries tend to buy in manageable amounts. Tom Sciliano of Denver’s Canna Security America told Freightwaves that dispensaries typically place orders of 10 pounds of marijuana or less, making the orders suitable for smaller vehicles that do not fall under the jurisdiction of the Department of Transportation.

CannaGuard Security in Oregon provides shipping of marijuana and cash in armored vans that feature bulletproof glass, safe deposit boxes, route tracking, and an anti-theft feature that deploys a fog coating potential thieves’ skin and clothes in plant DNA that cannot be washed away. Such shipping methods work for small orders and intrastate shipping, but more options will be needed for a growing industry.

The California Green Rush

After legalizing recreational marijuana in January 2018, California became the biggest cannabis market in the US. And, as a state that stretches 800 miles north-to-south, it has unique challenges and opportunities in discovering best practices for shipping cannabis across vast expanses of land.

In many ways, the supply chain developing around legalized marijuana in California could lay the groundwork for an effective supply chain if and when cannabis achieves federal legalization and give the state’s existing logistics companies a leg up on their national competition. This is what companies such as Nabis and ManifestSeven (formerly MJIC) are hoping for as they build what they refer to as a “cannabis superhighway” with distribution centers throughout the state.

For now, California’s marijuana supply chain functions much in the same way the beer supply chain works. The product is created (in this case by farmers rather than brewers), then it is sent to distribution centers where it is tested and prepared before ultimately sent out via delivery trucks to licensed retailers (dispensaries) where it is made available to consumers. Companies such as C4 Distro have emerged in California to handle logistics, merchandising, and compliance during the process.

Federal law prohibits the shipping of cannabis products across state lines, even if both states have fully legalized marijuana. However, with an estimated 80 percent of the marijuana consumed in the United States grown in California, the companies that have been freighting marijuana throughout the Golden State will be well-positioned to become titans in the national supply chain.

A Budding Industry

With the decriminalization of hemp courtesy of the 2018 Farm Bill and more states looking to put some form of marijuana legalization on the ballots, opportunities for new businesses involved in the cultivation, packaging, marketing, distribution, and retail of cannabis products will continue to grow. Despite regulatory and logistical challenges, it looks as though those willing to put forth the investment of time and money to help set up early versions of the marijuana supply chain will be greatly rewarded.