The supply-chain shortages that have crippled the global manufacturing and electronics industries will soon be coming to a legal weed store near you.
Over the past year, a major US-China trade war, shipping disasters, work shortages, and the pandemic all conspired to create the largest supply-chain shortage in recent history. Production of semiconductor chips used in literally every electronic device, from cars to phones to toasters, ground to a halt last year when the pandemic began spreading in China. And this year, US import and export restrictions have further limited supplies and driven prices ever higher.
In an interesting twist, the federal prohibition of cannabis has actually shielded state-legal weed businesses from suffering supply-chain issues like these, for the most part. Since federal law prevents cannabis companies from importing marijuana-related items from overseas, weed companies are largely forced to produce and package their own cannabis products onsite.
Despite these restrictions, legal cannabis businesses still rely on a wide variety of China-made materials, including lights for grow houses, batteries and power management chips for vapes, and custom packaging for products. And these are exactly the kinds of items that are becoming harder and harder to source. Legal vape manufacturers have been hit especially hard, given that nearly every part of a cannabis vape, other than the filled cart, is usually made in China.
On top of all these other issues, rolling power outages in China have forced many factories to temporarily suspend operations. And next February 1st, Chinese factories will shut their doors to celebrate the Lunar New Year and give workers a much-needed vacation. These holidays are expected to delay production of semiconductor chips and other essential items even further.
The Blinc Group, a New York City-based vape company, told Bloomberg that they are now having issues sourcing 6 of the 13 components used in their vape hardware. “I believe this issue will go on at least until the end of May,” said Blinc CEO Arnaud Dumas de Rauly. “It’s not just vape devices. The raw materials for the equipment that fills them with cannabis, the LEDs for the grow houses — all of it comes from China.”
So far, cannabis companies have been able to avoid passing supply-chain expenses on to their customers by pre-ordering materials months in advance, or from sourcing goods from American providers. 4Front Ventures, a cannabis company operating in five adult-use states, said that they are now experiencing serious shipping delays for China-made products like vape carts and specialty packaging.
“We’re trying to order ahead — we’re not paying more, but we’re paying up front, also we’ve begun to source domestic pools of inventory,” said Josh Krane, vice president of the company's California location, to Bloomberg.
Wholesale legal cannabis prices have actually dropped considerably this year, but these global shortages will likely prevent weed shoppers from saving any money. The average spot price for US legal weed fell to $1,290 a pound last week, a 19.1 percent year-over-year decline. But while the overall price of legal weed products should be dropping, these supply-chain issues are driving them back up.
Obviously, electronic devices like vapes will be hit the hardest, but even raw flower prices could rise, due to increased costs of packaging, grow lights, and other essentials. “Cannabis products should be getting cheaper for the consumer,” said Krane to Bloomberg. “But they’re not.”