Cannabis Business Executive
Since marijuana was legalized in California at the beginning of January, demand for legal marijuana has been on the rise. But there are big problems looming for the California market, which is expected to grow to $7 billion. Marijuana regulations have created a supply chain filled with delays the create product shortages and requirements that raise prices for consumers. It’s a trickle-down effect that could actually bolster illegal marijuana sales.
As anticipated before recreational marijuana was legalized in California, there is widespread demand for cannabis products. Dispensaries are making sales, and it’s very likely that the black market is feeling the effects. However, the industry buzz paints a bleak picture for the future if things continue along the path they’re currently traveling. Here are a few of the red flags being raised:
1. Supply Chain Delays Will Create a Marijuana Shortage for Retailers
According to the Washington Post, many marijuana retailers stockpiled inventories at the end of 2017 in anticipation of a rocky start to legal marijuana sales in 2018. The question California marijuana retailers are asking now is what happens when they deplete their inventories?
With only 756 licensed marijuana cultivators in California, according to the Cannabiz Media License Database, the legal marijuana industry has to compete with tens of thousands more illegal marijuana farms across the state. The Washington Post reports there are 15,000 illegal marijuana farms in Humboldt County, California alone, but there are just 168 licensed marijuana cultivators in Humboldt County per the Cannabiz Media California Scorecard.
The process to get marijuana products from cultivators to retailers is a long one with many stops along the way. Here’s a very simple overview. Retailers are required to contact distributors when they need inventory. Distributors must get the marijuana from growers, and store it in a warehouse for a testing company to retrieve a sample. There are only 20 testing facilities currently licensed to conduct the tests required by law before marijuana products can be sold to consumers.
Once the testing is done and the marijuana is approved, the distributor can package it and deliver it to the retailer. Of course, if the marijuana is not approved, the marijuana goes back to the cultivator where the problem must be fixed or the marijuana must be destroyed.
If you do the math, it shouldn’t come as a surprise that retailers are concerned their marijuana supplies will dry up. If they can’t meet consumer demand, not only will they lose money, but the black market will profit. It’s a lose-lose situation.