Invasion has knock-on effect on global supply chains
Global supply-chain woes – first triggered by the coronavirus pandemic in 2020 – have been exacerbated by Russia’s invasion of Ukraine, and the U.S. cannabis industry is expected to feel the added fallout for months.
Several ancillary company executives told MJBizDaily the problems are likely to continue this year, further forcing up costs and making it even more difficult for companies to secure key supplies such as specialty packaging, chemical solvents used in concentrate production and stainless steel.
“The two big pain points are going to be the solvents – the extraction piece, the consumables on that side – and packaging, because everyone wants a specialized brand,” predicted Liz Geisleman, co-founder of Canna Consortium, a group of 16 ancillary businesses that cater to plant-touching marijuana businesses.
Geisleman, who is also acting CEO of Rocky Mountain Reagents in Colorado, said Russia’s war on Ukraine has caused the global petroleum market to “go crazy.”
The war has not only resulted in a spike in gasoline prices – which has zapped cannabis delivery firms – but also has caused an increase in prices for substances such as corn and ethanol, which are major product exports from Ukraine to the U.S., Geisleman noted.
The ripple effects are hitting other natural resources, some of which have delayed cost increases because of the time it takes to refine fuels such as natural gas, propane and butane, she warned.
Solvent costs to skyrocket
“If (marijuana businesses are) using any kind of solvent, all of that is going to skyrocket in the next month or two, because it hasn’t hit the refineries yet,” Geisleman said.
“They’re going to see it in three to six months,” she said, adding that prices for “solvents for consumption in the concentrate market are the most unstable I’ve ever seen, in 25 years of working in chemical sales.”
And the situation could worsen, depending on whether China decides to support the Russian invasion and if the U.S. imposes additional sanctions on Chinese imports beyond the 25% tariff established during the Trump administration.
“All your plastic packaging, circuitry, controls … everything coming out of China is in question right now,” Geisleman said.
Domino effect ongoing
Even before the Russian invasion in February, the U.S. marijuana industry was feeling the coronavirus-induced global supply crunch: Companies faced labor shortages, rising prices for equipment and materials, shipping delays and more.
That has forced many companies to reassess and revamp procurement strategies as their margins dwindled.
Rocco Ianapollo, chief brand officer at Cannabis Kitchen Supplies, a Colorado-based distributor for cannabis retailers, manufacturers and growers, said the situation has created a global domino effect in which shortages in one industry have led to ongoing problems elsewhere.
And the cannabis industry has not been immune, he noted.
“Whatever has corrected itself is equally weighed down by things that haven’t corrected themselves,” Ianapollo said.
“We saw a lot of suppliers and vendors changing their accounting practices. People that extended terms all of a sudden stopped doing that, because they didn’t have the cash flow. That still persists today.”
Geisleman said that after the COVID-19 pandemic began in early 2020, it seemed like one major disruption after another popped up, including weather-related problems with oil refineries in Houston, governmental upheaval in countries such as Brazil and, now, the war in Ukraine.
“It all started there,” Geisleman said of the pandemic. “But it really exposed how vulnerable we are in every industry, dependent on things that don’t come from this country typically.”
She noted one of the latest shortages to cause a price spike is in stainless steel. That, in turn, has caused a 25% price increase for “anything in a can” that might be sold at grocery stores.
Bill Gorman, sales director for Botanical Extraction Huber USA, said shipping prices have skyrocketed for pretty much all international goods, because of the increase in fuel prices.
That is affecting every aspect of the supply chain, he said.
“Now, with gas prices, flights and cargo is getting just absolutely astronomical. Four X and going up,” Gorman said. “If you’re not having supply-chain issues, then you’re not selling or buying anything as a consumer on the commercial side.”
The shortages aren’t only on the supply side, either, he said. A major issue now is lack of labor, which has led to longer wait times for goods to be delivered.
“I’ve been waiting for two weeks for a shipping container that landed in North Carolina to get here,” Gorman said.
“We keep getting pushback, saying, ‘We don’t have the resources, we don’t have the manpower.’ And this is in Wilmington. It’s not a busy port, in comparison to California,” Gorman said.
“It’s not only the product itself. It’s the manpower to get that product to you.”
Gorman advised others to implement what he calls “The three Ps: patience, patience and Plan B.”
An obvious step, he added, is to line up a secondary source for any materials that are vital to the core business, in case the primary source falls through.
“It could be two. It could be six,” Gorman said of the number of suppliers a given company should have at the ready. “If you don’t do that, then you just put all your eggs in one basket.”
Geisleman echoed that point, saying all companies must consider backup sources for all their materials.
“You have to get secondary sourcing for everything, especially when it comes to packaging, especially if you have something really specialized,” she said.
“Make sure you’re not dependent on just one company, one country, one product. Make sure you protect yourself and insulate yourself, because who the hell knows?
“The last two years have been a wild adventure.”
By John Schroyer, Chief Correspondent, MJ Biz Daily, first posted on 6 April 2022
Rhode Island Rakes In $1.6 Million in First Week of Recreational Pot Sales
Rhode Island’s new adult-use cannabis market opened for business earlier this month, and so far, business is good.
Local news station WPRI, citing the state’s Department of Business Regulation, reported this week that “Rhode Island’s six marijuana dispensaries — five of which are currently authorized to sell to recreational customers — collectively sold just over $1.63 million worth of marijuana from Dec. 1 to Dec. 7.”
“Less than half of those sales were for recreational marijuana, at about $786,000. The rest, about $845,400, were sales to medical marijuana patients,” the station reported. “For comparison, during the last week of October — the most recent full week available prior to recreational sales — the dispensaries collectively sold $1 million worth of medical marijuana.”
Rhode Island legalized recreational cannabis use in May, when Gov. Dan McKee signed a bill that was passed by lawmakers in the state General Assembly.
The law made it legal for adults aged 21 and older to cultivate and possess marijuana, while also establishing the regulatory framework for cannabis sales.
“This bill successfully incorporates our priorities of making sure cannabis legalization is equitable, controlled, and safe,” McKee, a Democrat, said in a statement at the time. “In addition, it creates a process for the automatic expungement of past cannabis convictions. My Administration’s original legalization plan also included such a provision and I am thrilled that the Assembly recognized the importance of this particular issue. The end result is a win for our state both socially and economically.”
Additionally, the law “will give courts until July 1, 2024, to automatically expunge past convictions, and those who want their expungement sooner may request it,” the governor’s office explained in a press release at the time.
Late last month, McKee and the state’s Department of Business Regulation’s Office of Cannabis Regulation announced that “five licensed medical marijuana compassion centers have received state approval to begin selling adult use marijuana on or after December 1.”
The five “compassion centers” that were given approval to begin adult-use sales are: Aura of Rhode Island (Central Falls); Thomas C. Slater Center (Providence); Mother Earth Wellness (Pawtucket); Greenleaf Compassionate Care Center (Portsmouth); and RISE Warwick (Warwick).
“This milestone is the result of a carefully executed process to ensure that our state’s entry into this emerging market was done in a safe, controlled and equitable manner,” McKee said last month. “It is also a win for our statewide economy and our strong, locally based cannabis supply chain, which consists of nearly 70 licensed cultivators, processors and manufacturers in addition to our licensed compassion centers. Finally, I thank the leadership of the General Assembly for passing this practical implementation framework in the Rhode Island Cannabis Act and I look forward to continuing our work together on this issue.”
Matt Santacroce, who is serving as interim deputy director of the Rhode Island Department of Business Regulation, said last month that the state was “pleased with the quality and comprehensiveness of the applications we received from the state’s compassion centers, and we are proud to launch adult use sales in Rhode Island just six months after the Cannabis Act was signed into law, marking the Northeast’s fastest implementation period.”
“We look forward to continuing to work with the state’s cannabis business community to ensure this critical economic sector scales in compliance with the rules and regulations put forward by state regulators,” Santacroce said.
The launch of recreational sales on December 1 was only one change to Rhode Island’s existing marijuana policy to arrive this month.
WPRI reported that, on the same day, “the state also stopped charging medical patients to obtain or renew their medical marijuana cards,” adding that “there is an expected revenue loss from the pending plan to expunge marijuana possession charges, which will eliminate court fees from those crimes.”
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D.C. Council Approves Cannabis Bill To Promote Equity, Provide Tax Relief And Eliminate Medical Marijuana License Caps
On Tuesday, lawmakers in Washington, D.C., approved a bill that would significantly alter the city’s medical marijuana program. The bill would, among other things, remove licensing caps on cannabis businesses, reduce taxes for operators, increase efforts to promote social equity, and establish new categories of regulated businesses, such as on-site consumption facilities and cannabis cooking classes.
Additionally, it would allow current “gifting” operators, who sell non-cannabis items in exchange for “free” marijuana products, to transition into the permitted market while granting authorities the ability to crack down on those who continue to operate unlawfully.
The measure, which had been revised by the Committee of the Whole earlier in the day, was passed by the full D.C. Council by a vote of 7 to 4.
A second reading vote by the Council is still required before it can be sent to the mayor’s office.
Pro-reform lawmakers have voiced concerns that the bill’s most recent iteration may have unintended consequences for social fairness by granting preferential treatment to already established medical cannabis outlets.
Legally, adults would be able to selfcertify their medical marijuana use according to the Medical Cannabis Amendment Act.
Council Chairman Phil Mendelson (D) introduced the legislation on behalf of Mayor Muriel Bowser (D).
A note prepared for the hearing by the Committee of the Whole states that the most recent print “retains a majority of the adjustments and additions made by” the Committee on Business and Economic Development (CBED), which passed the measure last week.
It had progressed out of a different panel before.
Dispensaries’ Cashless ATM Transactions Get The Ax
Cannabis dispensaries in several states were left scrambling to find ways to process transactions without cash when a popular workaround to federal banking regulations known as cashless ATMs stopped working for many retailers beginning last week. Cashless ATMs, also known as “point of banking” systems, allow customers to use bank cards instead of cash at cannabis dispensaries, giving retailers and their patrons alike more flexibility when processing transactions for marijuana purchases.
But beginning last week, some of the biggest ATM transaction processors including NCR Corp.’s Columbus Data Services have shut down the ability of cashless ATM transaction processors to use their service, according to unidentified sources cited by Bloomberg. NCR declined to comment on the situation, according to the report.
“This is a pivotal point in cannabis banking,” Ryan Hamlin, chief executive officer of payment technology provider Posabit Systems Corp., told Bloomberg about the cashless ATM shutdowns.
Notice Given Last Year
Late last year, international payment processing giant Visa announced in a memo to retailers that it “was aware of a scheme where POS devices marketed as ‘Cashless ATMs’ are being deployed at merchant outlets.”
The system worked by rounding up purchases, often to multiples of $20, to make the transaction appear to be cash disbursements. Instead, only the change from the transaction would be returned to the customer, and the dispensary would keep the rest to cover the payment for the purchase.
“Cashless ATMs are POS devices driven by payment applications that mimic standalone ATMs. However, no cash disbursements are made to cardholders,” the December 2021 memo continues. “Instead, the devices are used for purchase transactions, which are miscoded as ATM cash disbursements. Purchase amounts are often rounded up to create the appearance of a cash disbursement.
In April, Bloomberg reported that cashless ATM transactions were able to be processed because they were disguised by listing an address of a nearby business such as a fast food restaurant instead of the actual dispensary address. An estimate put the portion of cannabis sales processed through cashless ATM transactions at 25% of the $25 billion in projected annual dispensary sales.
“Those sales could generate more than $500 million in fees for payment processors, based on average purchase sizes,” Bloomberg reported.
Banking Laws Hinder Legitimate Cannabis Businesses
The popularity of cashless ATM transactions is indicative of the difficulty federal regulations pose for cannabis businesses, even those operating legally under state law. Federal banking and money laundering laws put restrictions on the banking industry, making it difficult for financial institutions to provide traditional services such as credit card processing, loans, and deposit and payroll accounts. But cashless ATMs fail to pass muster with the federal regulations.
“The cashless ATM trend is damaging to investors, dispensaries, and consumers, as when it comes down to it, it’s blatant money laundering,” CannaTrac CEO Tom Gavin told High Times. “Instead of creating loopholes and using a cashless ATM, dispensaries should take advantage of other solutions currently on the market that are safe, legal, and transparent. A proper financial solution should be registered with FinCEN and have a money transmitter license, or be the agent of a sponsor or bank with a money transmitter license in their state.”
Hamlin of Posabit said that signs of the cashless ATM shutdown began to appear in November and increased last week. He estimated that by the end of the weekend, only about 20% of the cannabis industry was still able to use cashless ATM payments.
Cannabis dispensaries in Arizona, California, and Massachusetts have reportedly been affected by the shutdown of cashless ATM transactions, with employees at those shops recommending that they pay for their purchases with cash instead. Curaleaf Holdings, one of the largest cannabis retailers in the United States, reported in April that approximately one-third of the company’s dispensary transactions were processed through cashless ATMs.
“It’s left merchants in the lurch because it happened overnight, but the writing has been on the wall for a while now,” said Peter Su, a senior vice president at Green Check Verified, a consulting and software company that specializes in cannabis and banking.
Sahar Ayinehsazian, a partner at Vicente Sederberg LLP and co-chair of the law firm’s Banking and Financial Services Access Group, said that the shutdown of the cashless ATM system illustrates the need for the passage of legislation now pending before Congress that would allow legal cannabis businesses access to banking services.
“This shutdown further underscores the ongoing need for banking and financial reform for cannabis businesses and the passage of the SAFE Act,” Ayinehsazian wrote in an email to High Times. “While there can be no guarantee that the Act will open up payment processing for cannabis operators, the industry is very optimistic that its passage will facilitate access to legal and legitimate cashless payment options for cannabis operators.”
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