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.”