When it comes to business success, a “million dollar idea” or slick marketing campaign cannot compensate for a less than optimum supply chain. There are endless examples of delivery disappointments, manufacturing mishaps, and compliance catastrophes—some relatively minor, others more severe—that have impacted the reputation, operations or financials of companies representing every industry.
The emerging cannabis industry is increasingly confronting its own supply chain challenges, while the highly regulated nature of the industry adds more complexities. However, unlike more established industries, the cannabis industry is severely short on supply chain talent, notes Max Simon, CEO and co-founder of Green Flower, a creator of e-learning content for the cannabis industry.
New skillsets for a new industry
“There are knowledge gaps and training needs throughout every nook and cranny of the cannabis industry,” explains Simon, which stem from “three basic truths about this industry that many people don’t understand,” he says.
“One is that the compliance requirements are insanely aggressive. Secondly, every single jurisdiction has different requirements, not just state-to-state, but locally as well. For instance, in California, the state basically grants local governments the ability to create their own framework. So, in order to comply with the state framework, you have to comply with the local framework too, and they’re all different. Los Angeles County is different from Riverside County, and so on. And third, everybody in the cannabis industry, including the industry itself, is a start-up.”
While Simon does see supply chain talent migrating to the cannabis industry, what works in another industry, may not transfer to the cannabis industry. Moreover, there’s an open mindedness that’s necessary, while general inexperience and lack of knowledge about cannabis can also pose problems.
Many newcomers to the industry don’t understand, or underestimate, the complex regulatory framework, which means “a lot of what they did in their previous life flat-out doesn’t work in this space—marketing, branding, packaging, communication protocols, distribution—all of that needs to be re-thought,” he says. Furthermore, while supply chain experience is a requisite starting point, “people oftentimes have a huge [cannabis industry] knowledge gap,” says Simon.
That can result in “a lot of arrogance and over-confidence, which leads to a person’s demise because they make mistakes. They are not accurate. Or, they make product development choices that are not based in the current market standards or distribution standards,” he says. “You have to be humble in this space, which is not something you tend to find with people who come with a professional career in another industry.”
However, for those who can adapt and learn, there are plenty of opportunities in the cannabis supply chain, says Simon.
Logistics expertise is in high demand, along with testing analytics, tax aggregation and delivery. “You can choose one area, or you can be involved in all of these areas, plus retail distribution, where you’re selling and marketing brands to retailers,” he says.
Each of these areas requires unique and specialized knowledge and skills, “so the cannabis supply chain is ripe with opportunity, but also ripe with obstacles and challenges at the same time.”
Regulations and restrictions
The numerous and complex regulations related to cannabis are not only challenging from a supply chain talent perspective, they are also an operating and financial barrier.
In 1996, California voters approved Proposition 215, which legalized medical marijuana. Twenty years later, the passage of Proposition 64—the Adult Use of Marijuana Act—legalized recreational cannabis.
The transition from a medical market to a regulated market has had a significant impact on the industry.
“We went from about 30,000 licensed cannabis growers just in the Emerald Triangle,” says Simon, referring to the Northern California counties of Humboldt, Mendocino and Trinity, which grow over half of all cannabis consumed in the U.S., “to about 7,500 today.”
The reason, he says, was that “the enormity of compliance and licensing requirements became so onerous that most small businesses couldn’t keep up. And if you could, you were only able to do it in a smaller, local region.”
Expanding a business within California is difficult, and shipping outside of the state is prohibited. Add to that the “crop restrictions on how much crop you can grow in a specific place; space restrictions on how much manufacturing capacity you can have—these types of restrictions make economies of scale virtually impossible in the cannabis space,” says Simon, even for those California companies that are merely interested in growing their market share in-state.
Currently, cannabis is legal in 11 states, while twice those numbers of states have legalized medical marijuana. The prospects for legalization at the federal level are unclear, but Simon is optimistic.
“I think that no matter who wins the presidential election this fall, the benefits of a growing, taxable, job-creating industry will override any outdated political reservations attached to the cannabis industry,” he says.
In the meantime, legislation such as the STATES Act, which would amend the Controlled Substances Act of 1970 to prevent federal interference with states that legalized marijuana, and the SAFE Banking Act of 2019, which would allow financial institutions to transact with cannabis companies in states where cannabis is legal, highlight the legislative movement underway with regards to decriminalization and legalization.
“This is similar to what the alcohol prohibition road map looked like,” says Simon. “It wasn’t until states continued pushing their agendas forward that the federal government finally conceded and repealed prohibition. I think we’re going to see significant progress over this next term, no matter who’s in the presidency.”
As for the impact of COVID-19 on the cannabis industry, Simon notes that the designation of cannabis as “essential” during the pandemic is an indicator of how the political and regulatory climates are changing. The cannabis industry also creates jobs and generates tax revenues, he adds, making it very attractive.
Furthermore, “We’re haven’t seen health issues at cannabis companies, such as big spikes in COVID-19 outbreaks and safety concerns at businesses. We’re also witnessing a lot of public support, with consumers saying [access to cannabis] is really important to them.”
According to Simon, these factors are driving “a mass interest in professionals moving into the cannabis industry, because it’s a growing industry, and the cannabis ecosystem has such an enormous need for specialized talent.”