The Logistics of Dispensaries: Cannabis Sourcing, Shipping, and Inventory Management
The growing cannabis industry is unique. While states decriminalize and allow increased access to consumers, federal law has yet to change. Unfortunately, this creates complex problems for both growers and sellers of legal cannabis product. Crossing state lines is out of the question, and while local law enforcement crack down on illegal growers and transporters, cannabis shops can face decreased access to this crop while demand from the community continues to skyrocket.
How can cannabis dispensaries source, transport, and purchase their cannabis supplies? With so many varying laws and limitations, it’s no wonder cannabis dispensaries often face a logistical nightmare unlike many other retail industries.
How Dispensaries Source Cannabis
Legally obtaining high-quality product from farmers can be one of the most difficult steps in the process of opening a cannabis dispensary. Depending on the local/state laws, dispensaries may be forced to purchase from a very limited selection of farmers, or be required to grow their own supply.
Purchasing cannabis wholesale from farmers can be one of the easiest ways to get a dispensary off the ground — in an area that already has a mature market. Many companies that produce edibles and topical creams are large enough to have designated sellers and distribution channels already set up within your state, which can make organizing shipments easy. However, when it comes to getting the raw flower or concentrates, it can be a little trickier to find a supplier — especially in a state that has only recently legalized cannabis use.
According to the National Cannabis Industry Association (NCIA), in states like Oregon, Washington, and Colorado, many of the growers have found ways to navigate local laws and restrictions, making it easier for new dispensaries to contact and initiate business relationships.
In more recently legalized states, those channels have yet to develop. However, in states that are beginning to shift from medical-only to recreational use, the transition is often much smoother, as growers have had a chance to establish themselves.
What You Can Do:
Depending on where you live, your access to wholesale cannabis growers may be limited. The best option for getting involved with a wholesale grower is to contact your state regulators to get a list of licensed growers in your area. Additionally, some states have websites set up to allow you to browse the wholesaler selection.
Once you have the approved list, you can start researching local farmers and contact them to start a purchasing discussion. As you’re able to establish a connection and agree upon terms, you can utilize tools such as Fishbowl’s asset tracking software to keep an eye on the products as they move from the farm to your store.
Growing Their Own Product
Each state has different regulations related to what a cannabis seller is allowed to carry and sell to consumers over the legal age of consumption. In some states, cannabis sellers will be required to get their flower and edibles supply from licensed growers only, or may be restricted from getting edibles, flowers, and other cannabis varieties at all.
However, as previously noted by the NCIA, in states such as Alaska, Pennsylvania, Washington (and a few others) there is some legal room for cannabis retailers to also grow their own flowers. Depending on the funds you have available and the state you live in, growing your own flowers may be the easiest option available to newer cannabis retailers when getting started.
Regardless, it’s vital to know the local laws and if you are allowed to grow your own supply for sale to consumers. There may be additional permits that you’ll be required to obtain, as well as farming regulations that you have to meet. These can include ensuring that your crops aren’t sprayed with pesticides, are limited to a particular parcel of land, and much more.
What You Can Do:
To find your local laws, contact your state regulator. If you are able to start your dispensary with a wholesale supply, this may be the more affordable option, as growing or farming can get expensive.
Cannabis Shipping and Distributors
Once you’ve established a contact for a wholesale distributor, your next step will be to figure out the distribution channels for that product. How can you get the supply from the farm to your store; especially if the farm is on the other side of the state?
It’s important to remember that because cannabis products are still federally illegal, cannabis retailers are limited only to the licensed farmers in their state. Even with the recently passed 2018 Farm Bill, which legalized “hemp products” that contain no more than 0.3 percent of THC, many states still have restrictions on the distribution of cannabis products. Although this bill is important for the decriminalization of hemp as an industrial good, there are still criminal penalties on a federal level for cannabis products that are intended for recreational or medical use.
What options are available within your area, and what solutions are available to help you create a more seamless supply chain?
In areas where cannabis distribution is limited, many new companies have emerged to help fill the gaps in the supply chain between retailers, farmers, and wholesalers. One of the most common developments is the creation of specialized armored vehicles just for the cannabis industry, which do not require licensing with the Department of Transportation.
As Trucks.com notes, security is a top concern for this industry, and armored vans can be some of the most secure methods for getting cannabis products between businesses. Some vans can carry hundreds of pounds of product, but many armored services prefer to keep shipments rather small — such as 10 pounds or less — in order to avoid danger and keep their fleet of vans to a minimum.
Armored vans also work for transporting money, although there are other financial considerations to keep in mind when it comes to money handling for cannabis businesses (which we will cover in more depth below). Many of these armored truck or van services operate strictly with cash sales and, just like dispensaries, don’t work with banking institutions due to the federal status of cannabis products.
What You Can Do:
Depending on where you live, there may not be an armored van service that can work with your products. However, there may be more on the horizon, as many of these armored van services are spreading to other states that have some form of cannabis legalization. In California, Truck.com also notes that it’s expected that the demand for armored services for cannabis businesses will be extremely high in the coming years.
Department of Transportation
Due to the federal status of cannabis products, truckers that work with the Department of Transportation are legally barred from handling cannabis products (unless they are manufactured for “hemp” purposes, as stated in the Farm Bill).
Because of these restrictions, the shipping and delivery of cannabis can be challenging for cannabis retailers. However, some companies are finding inspiration in the alcohol distribution industry.
As the Wall Street Journal noted: “California’s adult-use legislation sets a framework for a wholesale supply chain by licensing distribution businesses, separate from the licenses granted to producers and retailers. That means distributors can handle transportation and logistics for multiple manufacturers and represent multiple brands when selling the goods to stores—similar to distribution in the alcohol industry.”
In the future, if the United States (as a whole) were to decriminalize cannabis, these growing pains that many states and high-demand areas are feeling now will only make the transition into legalization easier down the road.
What You Can Do:
Your preferred wholesaler may have a distribution network already in place, or they may be able to recommend a preferred transportation partner. Keep in mind that the transportation operators will need to be licensed to legally transport cannabis products, and they may only operate in cash exchanges.
If legalization becomes a national phenomenon, other transportation systems will become available, and utilizing integrated shipping solutions and logistics can help you better track and manage your shipments to ensure you’re getting the best service and not hemorrhaging money on poor shipping practices.
Cannabis Storage and Inventory Management for Retail
Now that you understand what your options are for obtaining product as a dispensary and understand the potential limitations to shipping your supply, your next hurdle to overcome is the storage and inventory management of your cannabis goods. How do you keep track of your product, sales, and ordering?
Cannabis Storage Basics
Because cannabis product in dispensaries is created for consumption, storage concerns are a little more nuanced, as the product often has a more limited shelf life and requires proper storage. Additionally, tracking, monitoring, and ordering new product requires strict adherence to local and state laws.
Because of these restrictions, it’s important to employ active management of the products within your store, and to utilize the most sophisticated solutions and hardware available to you to better track sales, monitor shipments, process orders, and stay informed on where your products come from and how often you need to order them.
As for storage, many dispensaries utilize glass containers that can preserve the freshness of the bud while still allowing customers the chance to view the selection. Additionally, many edibles and topical creams will come with their own protective packaging that can help preserve the product.
Cannabis Supply and Demand Challenges
For many states that have legalized cannabis sales, there is a major restriction on the amount and quality of product that they can purchase. Because dispensaries are limited to licensed growers in their state, they may not be able to keep up with the demand from customers.
Pennsylvania is one example, where only nine licensed shops with an estimated 7,000 customers were forced to get their supply from only two legal growers in the state, according to Billy Penn. This lack of supply relative to overwhelming demand caused many dispensaries to close their doors as they waited for a renewal of their products.
However, in more matured markets, such as Oregon, the opposite issue is developing, notes the Guardian. In 2018, growers overproduced cannabis crops, which caused the market prices of the product to drop considerably. In total, growers produced about 1.1 million pounds of cannabis crops in a single month (February 2018), while only 340,000 pounds were consumed in the state over the entirety of 2017.
Banking and Dispensary Finances
Many dispensaries (and the companies that work with them) are forced to do all their transactions with cash and without the support of a bank. Legally, banks operate under federal laws, and the handling of cash from cannabis sales is seen as a form of “money laundering.” This creates security issues, as businesses are not able to store their money in a secured banking institution.
What options are available to dispensaries? Depending on where you live, some local credit unions may be able to assist cannabis businesses with either money handling or transactions. In Colorado, one small credit union was able to make a splash by providing checking accounts strictly for the marijuana industry, as was reported in the New York Times. However, they operate in a strict fashion, often micro-managing the financials of the cannabis businesses that work with them in order to stay compliant with state laws.
There are very few credit unions that are willing to work with cannabis businesses, but for those that are, it can be a major advantage for dispensary owners. Consider what financial options are available in your state, the laws surrounding financial handlings for cannabis businesses, and what security options you may have if banks and credit unions are unavailable.