Licensed marijuana firms cannot legally move pot products across state lines. But that doesn’t mean they’ve been spared the supply chain disruptions wreaking havoc on the rest of the business world.
As the Omicron variant surges, Massachusetts cannabis companies are facing significant shortages of foreign-made packaging and construction materials that are essential to their operations, including vaporizer batteries and cartridges, childproof containers, and the steel beams and air conditioning equipment used to build indoor cultivation facilities.
With many of the ports and factories that supply those materials closed or running at limited capacity because of COVID-19, cannabis producers and retailers said they are scrambling to find alternatives — often at much higher cost. Combined with staffing problems also caused by the latest coronavirus surge, the shortages have resulted in higher business expenses, limited product selection, and delayed construction of new buildings, executives said.
“All our business expectations are out the window right now,” said Kobie Evans, co-owner of the Pure Oasis marijuana store in Boston’s Grove Hall neighborhood. “The virus has thrown everything into a tailspin.”
Pure Oasis is gearing up to build a new retail shop in downtown Boston, plus its own growing and processing facility in Dighton. But Evans said both projects will now probably take longer and cost much more than originally anticipated, as construction companies facing their own staffing and material shortages struggle to keep pace with a glut of contracts. Many contractors wouldn’t even submit a competitive bid, he added, insisting that Pure Oasis pay full sticker price.
“The quote for our Boston build-out was 30 percent more than it would normally be; it was stunningly high,” Evans said. “A downtown dispensary project used to be something [construction companies] would fight over, but now everyone has their hands full and diminished capacity.”
Meanwhile, Evans said about one-third of the staff at his Grove Hall store have contracted Omicron over the past month, forcing him and other executives to take shifts checking customer IDs and working the sales counter.
Cannabis growers and manufacturers of edibles and other marijuana-infused products are facing even more turmoil than retailers, as critical product packaging materials remain stuck on container ships anchored outside clogged ports.
Brandon Pollock, chief executive of Stoneham-based Theory Wellness, said his firm has had to expend extra effort and money to shore up its fickle supply.
Aluminum cans needed for increasingly popular THC-infused beverages are particularly scarce, thanks to shipping delays and skyrocketing demand from alcohol companies that are grappling with a pandemic-related shift away from restaurants and bars (which dispense many drinks from kegs and other larger containers) and toward the home consumption of canned beer and the like. In response, can manufacturers are refusing to accept all but the largest orders, forcing Theory Wellness to purchase 1 million cans at once and rent out a separate warehouse to store them.
“The supplier wouldn’t give us the time of day otherwise,” Pollock said. “As a business owner, you really don’t want to rent an entire building just to store cans, but that’s the reality we’re faced with.”
While many industries are facing similar supply chain disruptions, the problems for marijuana companies are compounded by unique regulatory and legal complexities.
Marijuana product packages, for example, must be childproof and customized with labels carrying state health warnings and other information, making it difficult to switch quickly to a new supplier when one can’t deliver. Pollock said his firm temporarily dropped a line of pre-rolled joints because the childproof tins in which they’re typically packaged were out of stock for weeks.
“We’ve found issues across the board with packaging from overseas,” Pollock said. “Even when something is available, vendors can’t give us reliable shipping time estimates, unless you want to pay 10 times more to ship via air instead of boat.”
Then again, he added, “if you have materials stuck on a ship somewhere, and other companies want them, now the price is going to get bid up. It’s a real problem either way.”
Financing is another major challenge for pot businesses. Because the drug is illegal under federal law, most money in the industry is raised privately, which means operators faced with packaging shortages or an unexpectedly high quote for a construction project cannot take out a small-business loan from a bank to make up the difference, but must go back to their investors.
“When you’re operating in a fast-moving industry that doesn’t have traditional financing, every dollar and every minute counts,” said Trent Woloveck, chief commercial officer of Jushi Holdings, a large, multistate marijuana company that recently expanded into Massachusetts by acquiring Millbury-based Nature’s Remedy. “If I have to put 50 percent down [on packaging] and it doesn’t get to me for 90 or 120 days, that’s a big deal; that’s a whole product line I can’t roll out on schedule.”
Marijuana businesses insisted they are not passing their increased costs on to consumers and medical marijuana patients, at least for now. The state’s cannabis market has become increasingly competitive as more operators win licenses, and high dispensary prices — customers’ top complaint since the advent of legalization — are finally (if gradually) creeping lower.
Still, executives said they’re anticipating further disruptions to the supply chain around Feb. 1, when many factory workers in China return home for the country’s New Year holiday. And there’s the persistent fear that additional coronavirus variants could emerge and prolong the supply chain’s problems.
In the meantime, companies are buoyed by a silver lining: Marijuana sales around the country are rising faster than ever, perhaps because of the pandemic.
“We feel extremely confident in the cannabis business as a whole,” Woloveck said, “whether we reopen the economy or continue playing the variant game.”