Coronavirus Puts Pressure on the Cannabis Supply Chain

Coronavirus Puts Pressure on the Cannabis Supply Chain

Dispensaries and key suppliers may need to reconsider their future sourcing decisions.

Subscribe
March 6, 2020

Greenhouse Wellness, a dispensary located in Ellicott City, Md., already has a 10- to 18-week delay on vape cartridge shipments due to the coronavirus, says Gina Dubbe, company co-founder and president.

The cannabis industry could face a long-term supply shortage because battery life on many disposable vapes is typically six months, Dubbe says, citing a notable timeline.

“We’re fortunate because we stocked six months of supply, so we’re hoping by that time the factories will be back open again,” she says.

It’s an issue that industries across a wide range of sectors are grappling with. The world’s largest 1,000 companies or their suppliers own about 12,000 manufacturing or distribution facilities in quarantined areas, according to a Harvard Business Review report.

About 90% of the world's e-cigarettes and vaping devices come from China, according to a Feb. 26 news release from online vape retailer ProVape. The retailer warned that if factories in affected regions remain closed, “there could be a significant delay in the shipment of vaping supplies, if not a total outage.”

“In the cannabis industry, the biggest components that make any sale possible—beyond the cannabis itself—are hardware (like vape pens and cartridges) and packaging,” says Simon Dufour, who provides consulting services for the cannabis industry as a CPA for Hall & Company, based in Irvine, Calif.

“Unfortunately, the supply chain for these critical elements has been massively crippled by the spread of the coronavirus in China and the subsequent industry shutdowns.”

Strategic Sourcing

Offshoring, particularly to China, has been a common strategy that many U.S. companies have adopted to take advantage of lower labor and production costs. In recent years, some companies, particularly those in the apparel industry, have begun sourcing more of their products from the U.S. or nearby countries, such as Mexico, to reduce lead times and increase supply chain resiliency. The novel coronavirus, or COVID-19, could force cannabis companies to also consider suppliers closer to home.

“Should this last even longer, Western companies will no doubt begin to rise up to fill the void left by Chinese manufacturers,” Dufour says. “If it makes it to that point, savvy business owners may do well to consider new partnerships to get through this rough patch.”

Platinum, a vape products company with primary locations in California and Michigan, is experiencing the impact from shortages related to the outbreak, but the company is much better positioned than some of its competitors because of its sourcing strategy, says company president George Sadler. The company secured a large volume of vape hardware from a U.S.-based supplier before the virus impacted shipments, he says.

“We partnered with these guys very well, so we locked in a big volume of our hardware,” he says. “I can tell you I know where we stand with that, and there are other companies that probably didn’t do this in time. So, unless they start manufacturing and shipping here in the next probably 20 to 30 days, we’re going to see a huge crisis, especially on the vape side.”

Curaleaf Holdings Inc. stocked up on a five-month supply of vapes from a U.S. supplier, Boris Jordan, the company’s executive chairman told Bloomberg News. U.S. suppliers may step in to fill the void, but the shift to domestic production will likely lead to higher prices for vape products, Dubbe says. 

According to Dufour, “sourcing from U.S. would undoubtedly be more costly but is a viable option for the short term.”

Future Supply Chain Strategies

Vape products include many components that manufacturers source from a wide range of suppliers, Sadler says.

“Manufacturers aren’t just one company—they bring pieces from a bunch of other manufacturers, meaning they’ll manufacture the shell and whatever else, and then the filament and the ceramic coils and everything else that’s involved in that cartridge are being manufactured at other factories,” he says.

Dispensaries may want to consider carrying standard, mass-produced vape products instead of a wide range of stock keeping units to increase availability, Dufour says.

“In the short term, it may be advantageous to stock more homogenous pens, which have a much better chance of making it through manufacturing while China is still reeling,” he says.

Dufour also suggests companies may want to consider forming new business relationships to secure their supply chains in the coming months.

Senior Digital Editor Melissa Schiller contributed to this report.