Nabis, California’s largest cannabis distributor, is at the centre of California’s supply chain. Koch shares his insights on the issues that distributors, brands and customers are seeing.
As a fully-licensed cannabis wholesale platform, Nabis states it has the largest portfolio of cannabis brands in the world. It supplies 100 per cent of California’s dispensaries and delivery services. Working with cultivators and manufacturers, and shipping to retail dispensaries and delivery services across the state, the company has now applied for a licence to expand into New York.
With 2021 seeing supply chain issues hit many cannabis retailers in California, Rob Koch, director of strategy and information at Nabis discusses some of these problems that have been impacting the company and its brands – which are also dealing with a customer base facing high inflation.
“We have an agnostic distribution model. We work as a shipping and logistics partner for now about 150 Different brands in California and we also service them with various software technologies and solutions to run their business,” said Koch.
“At the end of 2021, we saw price rises across the board with inflation – not just at the consumer level, but also throughout the supply chain. So, the cost of our materials for shipping, gas prices and vehicles for example – all of those prices have come up. That definitely puts a strain throughout the supply chain. In addition to that, things are taking a lot longer with global shipping delays.”
Nabis is in the middle of building out a new distribution facility in California, and Koch highlights these issues push out the timelines due to delays in procuring construction materials alongside the price rises. However, it is not just the distributors themselves being hit – cannabis brands are struggling to procure supplies for their products.
“A lot of our brand partners will source their raw materials and packaging components from a variety of partners,” said Koch.
“When it comes to partners that are located overseas, that can also impact their timelines, because when a batch of inventory is ready for production and ready to move down the supply chain, they need those packaging materials in order to make sure that retail customers have a consistent supply.
“On the cultivation and manufacturing side, the quality of the product is relatively consistent, but at the brand level, when they’re thinking about where they’re sourcing their raw materials from, there is a lot of volatility in cultivation and manufacturing partnerships.
“When they work with third-party cultivators, in some cases, if those operators face challenges or go out of business, then they need to have backstops. Because of this, some brands have looked to move a lot of that in-house, but that carries its own challenges.
“To put that in perspective, Q3/Q4 of last year in California was the first time that sales actually declined – previously, year over year this has only been increasing and so I think that is a reflection of a number of different factors, but certainly, some of the supply chain issues did not help.
“From our perspective, the amount of work and the number of units that we shipped actually increased. So, although prices have generally come down across the board, we as a distributor are actually shipping more products out to market. I think that is a generally good sign as the demand for the underlying product is still increasing, but the prices and the sales dollars associated with those products have fallen slightly in California.
“From an operating perspective that is challenging because the amount of work that’s being done is obviously increasing but the dollars don’t necessarily reflect that.”
Koch points out that California has extremely strict testing requirements to give consumers a full picture of product quality, potency, and other variables related to product quality. In California some of the main difficulties have arisen due to limited retail licenses, and, in many cases, retail locations are not allowed in many municipalities, creating a lack of supply for consumers.
“Ultimately, consumers will move to other mechanisms to get that product and so I think it’s compounded from the fact that there isn’t enough retail coverage and also that prices are increasing in retail,” he said. “That price point can be difficult to manage when operators are facing that kind of constraint from both ends.”
This could push consumers who are price sensitive back into the black market – an issue that is also playing out in Canada due to high price points and a lack of dispensaries pushing people back into the illicit market. Koch emphasises that it is a big problem when the retail supply doesn’t meet geographical demand, and that in California, there are still many places where consumers don’t have reliable options or delivery service times may be lengthy and be extremely expensive.
Koch commented: “Regulators are dealing with a lot of issues and a lot of the focus is really on the retail coverage and the cultivation and manufacturing.
“Many states are pushing for a lot more equity when it comes to granting licences, and distribution is kind of one of those pieces that since it exists in all other industries, it is seen as something that will just occur naturally. However, that is, and was, probably the biggest pain point of operators back when the California market started.
“They were not able to have a reliable shipping partner to get their products to market. And that forced them to continue to use self-distribution methods. When a brand is trying to grow and increase marketing sales, needing to manage that logistics piece and the compliance associated with shipping and warehousing, is extremely expensive.
“The distribution layer is really important for regulators to consider – especially in new markets – to make sure that is properly considered and reflected in terms of the abilities of operators to get licensed and support the overall market.”
Distribution should not act as a bottleneck for brands and entrepreneurs looking to get into the space, says Koch.
“From a global perspective, third party distribution is quite important because it allows distributors to work more agnostically with brand partners, without needing to make decisions on who to distribute based on who they make the most margin from, or which brands will guarantee to sell the most.
“I think that’s one of the reasons that the product category splits in California are so diverse – because there is a lot of competition and brands are continuing to increase catalogues and expanding into new categories. From the consumer standpoint, I think that is leading to better outcomes at the retail level where consumers have more choice and increased access to those products.”
California must bin cannabis cultivation tax to compete with black market
A new study has concluded that the State’s cannabis tax must be eliminated to move consumers away from illicit products.
California could increase legal cannabis sales and bring in 123 per cent more in total monthly cannabis-related tax revenue by 2024 by eliminating its cultivation tax.
California’s high cannabis taxes are high – as much as USE$90 per ounce, or $1,441 per pound. These taxes are hurting farmers and businesses while the illicit market captures two-thirds of cannabis sales, according to a new study carried out by Reason Foundation, Good Farmers Great Neighbors, and Precision Advocacy.
These taxes mean that California’s legal cannabis market has failed to meet expectations and is just one-third the size expected based on its population and adult usage rates. Additionally, the study estimates that nearly two-thirds of cannabis sales in California are still taking place on the illicit market.
Cannabis taxes average $340 per pound in Oregon and $526 a pound in Colorado, and, due to these lower taxes and greater access to legal products, the report shows that residents in Oregon spend 378 per cent more per capita on legal cannabis. Residents of Colorado spend 335 per cent more per capita on legal cannabis than Californians spend.
Director of drug policy at Reason Foundation, Geoffrey Lawrence, commented: “High taxes are undermining California’s legal cannabis market. California could double monthly cannabis tax revenues by 2024 by eliminating the cultivation tax.
“Without the cultivation tax, our data show lower cannabis prices would increase sales of legal products, increasing the state government’s general sales tax revenue and more than replacing losses from the eliminated cultivation tax.”
President of Precision Advocacy and legislative advocate of the California Cannabis Industry Association, Amy O’Gorman Jenkins, commented: “We are experiencing first-hand a serious price compression in the California supply-chain in part as a result of the illegal market, high taxes and fees and a patchwork of inconsistent local taxes driving legal operators to the brink of a financial cliff.
“We cannot allow the largest cannabis market in the world to fail. This study provides a roadmap of tax policy solutions for the governor and state legislative leaders to consider immediately.”
The study also recommends reducing retail excise taxes and encourages policies that could incentivise California’s local governments to stop banning the sale of legal cannabis products. It also found that Oregon has one legal cannabis retailer for every 6,145 residents and Colorado has one legal retailer for every 13,838 residents while California has just one legal cannabis retailer for every 29,292 residents.
Policy director of Good Farmers Great Neighbors, Sam Rodriguez, stated: “California’s cannabis farmers are experiencing the biggest challenges of their time. Many farmers are considering going fallow this year.
“Busy Bee Organics, one of the first woman-owned, sun-grown farmers in Santa Barbara, has already declared she’s not planting this year.
”California’s cultivation tax is regressive and has only contributed to uncertainty about the future of the state’s cannabis farmland economy and whether it can survive. The immediate elimination of the cultivation tax would be a first step in addressing critical issues impacting the state’s legal cannabis market from seed to sale.”
The problem with “copycat” cannabis edibles
With the rise in popularity of cannabis edibles, the problem with “copycat” products that look like popular snacks should be a major concern for the industry.
A recent study has shown that high-THC copycat cannabis edibles that look like well-known snacks increase the risk of ingestion by children.
Edibles are an increasingly popular segment of the cannabis market in the US, with up to 56 per cent of cannabis consumers buying them. Many of these products often use branding and imagery very similar to popular foods, which is raising public health concerns in the country – with nearly 2,000 cases of young children ages 0 to 9 consuming edibles from 2017 to 2019.
The study, carried out by the NYU School of Global Public Health, and published in Drug and Alcohol Dependence, collected hundreds of photos of cannabis products and analysed packaging, finding that out of 267 edibles, 8 per cent closely resembled 13 different snack products.
These findings highlight the risk that these copycat products could be attractive to children.
Lead author, Danielle Ompad, associate professor of epidemiology at NYU School of Global Public Health, said: “At first glance, most of the packages look almost exactly like familiar snacks.
“If these copycat cannabis products are not stored safely, there is the potential for accidental ingestion by children or adults.”
Twelve of the products were candies or sweet snacks and one was a salty snack. Eight of the 13 packages used the exact brand or product name of the original product; the remaining five used names that were similar, for example “Stoner Patch Dummies” instead of “Sour Patch Kids”. Seven of the packages used the same cartoon or brand character as the original product.
“While each package is likely intended to include multiple doses, few packages indicate the serving size or number of servings,” said Ompad. “Moreover, if we’re considering 10 mg a standard dose, these products could contain an alarming 30 to 60 doses per package.
“Policies to prevent cannabis packaging from appealing to children haven’t stopped copycat products from entering the market — nor have food brands taken legal action against cannabis companies for copyright infringement.
“People who purchase edibles that look like snack foods should store them separately from regular snacks and out of reach of children.”
New platform aims to transform US cannabis supply chain
The platform aims to provide information sharing, reduce costs, and increase transparency and trust.
Lucid Green has announced it has raised $10m (~£7.88m) for its UPC platform in a series B funding round. The company is aiming to transform the cannabis supply chain through its LucidIDs, the industry’s first intelligent QR code.
The cannabis supply chain in the US is riddled with challenges for businesses. There are problems with inaccurate product information, inefficient cycle counting, sporadic Certificate of Analysis (COA) compliance and secondary stickering.
Manual inventory management is also time consuming, expensive and prone to errors. Brands experience increased costs and lower profit margins as a result of compliance and supply chain inefficiencies, and lack the mechanisms to communicate directly with consumers and dispensaries. Distributors face reducing retailer order fulfilment time and turnaround – resulting in higher working capital requirements for their customers.
Lucid Green is aiming to solve these problems with its intelligent UPC through its $10m, funding round led by Gron Ventures, with participation by Gotham Green Partners.
Co-founder and CEO of Lucid Green, Larry Levy, commented: “It’s clear that the cannabis supply chain’s status quo is holding the industry back, and Lucid Green is proud to have pioneered the first solutions to benefit all stakeholders.
“We are laser-focused on developing the leading solutions to strengthen our industry. Lucid Green benefits brands, distributors and retailers while delivering a much needed educational experience for consumers that helps to further normalise the industry.”
The new funding will support the recruitment of top tier talent, raise awareness of its technology, and accelerate adoption of its solution.
LucidIDs utilise QR codes to allowing for true truck-to-shelf inventory intake, reducing manual labor and human errors, and virtually eliminating data cleanliness issues.
The QR codes permit dynamic information flow which empowers stakeholders to continue adding information about a product through its lifecycle, unlike the status quo of secondary stickering. The IDs have already been used for more than 17 million products.
The IDs offer brands, retailers and distributors a solution to reduce costs, increase transparency, and drive more sales, delivering data insights and COA management.
Wilder Ramsey, managing partner of Gron Ventures, commented: “Inefficiencies and outdated methods in the supply chain are holding the cannabis industry back from reaching its full potential.
“We are proud to have invested in Lucid Green because the power and promise of their technology and solutions can save all stakeholders time and money, while increasing education and trust among consumers.”
“Our core ethos is quality, consistency and value, and part of our mission is to provide retailers and consumers with the best cannabis products at the best price,” added Skip Motsenbocker, CEO at Pacific Stone.
“Lucid Green is a critical partner for us, and with their LucidIDs, we’re able to directly communicate with budtenders and consumers, increasing education, loyalty and trust. Lucid Green is creating higher profit margins for us thanks to more efficient truck-to-shelf processing, and we think the whole industry would benefit from their solutions.”
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