Colorado marijuana companies take a hit from global supply-chain issues

Colorado’s marijuana companies aren’t immune to the supply chain disruptions testing industries worldwide, with some feeling the squeeze on packaging, nutrients and more.

“Cannabis is no different than any other industry,” said Matt Jacobs, vice president of operations at Veritas Fine Cannabis. “We’ve got the same issues that other people do when it comes to the supply chain right now.”

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 Statistics’ Consumer Price Index reports.

All the while, businesses are trying to satiate consumer demand, including those in Colorado’s 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 state’s Revenue Department reported.

Truman Bradley, executive director of the Marijuana Industry Group, the trade association for the state’s cannabis industry, said those statistics don’t tell the full story. Although the record-setting sales numbers are true, cannabis companies are subject to “extremely harsh federal tax rules,” while also paying state and local taxes, he said. Therefore, supply-chain problems stretch these businesses even thinner, Bradley added.

“Unlike other industries that also face similar supply-chain issues, we are one of, if not the most highly-regulated industry here in the state,” he said in a phone interview. “On top of a very, very heavy regulatory load, this is just one more thing for this industry, and it’s a challenge.”

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 state’s marijuana industry: It’s “somewhat of a self-contained supply chain.”

The marijuana that’s grown, the edibles that are manufactured, the concentrates that are extracted — “everything has to be made in the state of Colorado,” 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 “everything’s taking way longer,” he added in a phone interview.

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, “every piece of this has gotten more expensive,” he added. “We’re essentially eating these increases so far.”

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 “considerably” boosted in price. He pointed to difficulties obtaining certain nutrients, which often come from China.

“On some of the nutrients, we’ve had to go and buy pretty much for the whole year” rather than incrementally throughout the the year, he said in a phone interview. “We’re spending, of course, way more money up front than we’d like to.”

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 “obviously throws some kinks” in the construction process now, Kobayashi wrote in an email.

“It is very difficult to organize a large construction project with accurate budgets and timing of completion,” 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.

Dawn Palmer of Kush Gardens LLC, a retail marijuana dispensary in De Beque, has run into locally relevant supply chain woes. While her company hasn’t ordered products from China in the past two years, the Interstate 70 corridor has caused her grief instead by hindering deliveries.

“Since we are on the Western Slope, all delivery usually comes from Denver down I-70,” she wrote in an emailed statement, adding that fires, floods, and weather have resulted in road closures. Additionally, “crashes have added five hours to routes, if not canceled delivery altogether.”

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