Cannabis Industry Grapples with COVID-19 Outbreak, Maine Issues First Adult-Use Licenses: Week in Review

Consumers across the U.S. are stocking up on the essentials: toilet paper, food and cannabis. That means long lines at dispensaries as customers in many markets rush to purchase what they can in anticipation of shelter-in-place orders and business shutdowns.

The demand spike creates additional challenges for the fledgling cannabis supply chain. The industry faces potential inventory shortages for accessories, such as vape pens and cartridges, sourced from China due to the COVID-19 pandemic.

Panic buying and a lack of access to overseas suppliers could force cannabis businesses to rationalize their supply base and centralize purchasing at the corporate level, says Colin Kelley, operating partner for private equity investment firm Merida Capital Partners. Cannabis companies with multiple locations can potentially hedge against future disruptions and boost productivity by moving procurement functions from the departmental or division level to the corporate office, Kelley says.

“This is particularly important when there are multiple locations like cultivation or processing or different dispensaries in the same market or different markets,” says Kelley, who also serves as a board member of LeafLine Labs, one of two licensed producers and distributors of medical cannabis in Minnesota. 

Centralized procurement pays off

A centralized approach to purchasing may open opportunities to streamline the supply base and take advantage of preferred vendor programs, Kelley says. In this scenario, each location specifies its needs—whether it’s a type of nutrient, vape device or capital equipment for extraction—and sends that to a centralized, corporate office for ordering.

“It’s considerably more efficient. … The department heads—whether a master grower or formulation lead—can focus on where their talents are most valuable to the company, and someone at corporate can look at who are the preferred vendors, whether it’s having one packaging supplier or two consumable suppliers instead of buying five things from Amazon and two things from a growing supplier down the street.”

In addition to offering favorable pricing, larger distributors or preferred suppliers may help companies manage inventory levels and replenishment, Kelley says. 

“They have the ability to anticipate product shortages and stockpile for you, and they have ability to understand what are reasonable replacements for brand-name products (in the event of a shortage),” Kelley says.

The need for centralized purchasing has been evident during the current COVID-19 crisis, he says. He points to Maryland’s suspension of “deli-style” sales as an example. Prior to the coronavirus outbreak, budtenders in Maryland could package flower for a customer. The market there has shifted to prepackaged flower, which means dispensaries need to quickly adjust, Kelley says.

“Being able to make those pivots and have preferred vendors that you can call and have product in one day or two days from a centralized location is critical,” he says.

Dockside delivers amid the rush

Seattle-area retailer Dockside Cannabis experienced one of its busiest weeks since opening in 2011 due to the buying frenzy, says co-founder Aaron Varney. The region is the epicenter of the COVID-19 outbreak in the U.S. Washington state reported nearly 1,200 confirmed cases as of March 19, according to the Centers for Disease Control and Prevention. So far, Dockside hasn’t experienced any product shortages, says Varney, whose company has four locations in the Seattle area. The company’s relationships with its suppliers has played a critical role in its ability to continue delivering to customers during the crisis, Varney says.

“We have deep relationships with our supply chain, and we’ve been working with most of them for a year or more, and we’re in communication with them,” Varney says.

To date, there has been plenty of product available in the supply chain, but many producers are starting to lay off workers, which can have an impact on availability further down the road, Varney says. The impact of COVID-19-related layoffs and shutdowns has changed some of Dockside’s sourcing strategies, Varney says. The company has focused on stocking more tried-and-true products rather than introducing newer strains to its menu.

“We like to look for new things and find things that meet our quality standards, but that’s slowed way down,” Varney says. “We’re not bringing on anything new right now.”

Consumer trends can shift quickly, so established products are less risky from an inventory standpoint during a potential market slowdown, according to Varney. 

“Things can go in and out of trend rather quickly, so you don’t want to buy in too deep to any one thing too quickly,” he says. 

Looking ahead, Varney says the current situation will require new approaches to meeting consumer needs.

“I have a sense we’re going to have to modify what retail looks like for the indefinite future but will continue to remain open as long as we’re not shut down by some ordinance or emergency proclamation,” he says.