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
Cannabis poised to hit $200B by 2028
SkyQuest Technology, a consulting business, has released a research estimating the present worth of the global cannabis market at $28.06 billion as of 2021 and projecting the industry’s growth up to $197.75 billion by 2028.
The “Global Cannabis Market” research divides the market into submarkets. Flower and concentrates are two distinct categories, while THC dominance, CBD predominance, and a balanced ratio of the two are others (which reviews North America, Europe, Asia Pacific, Latin America, Middle East, and Africa).
Recreational cannabis use is far more popular than medical due to its many reported health advantages, including relief from stress and depression and an uptick in energy and originality.
The report claims that the compound annual growth rate (CAGR) now sits at 32% annually as of 2021 due to the rapid growth of cannabis adoption. Until 2028, the CAGR is projected to rise to 35%.
The paper also discusses regional forecasts, noting that demand is anticipated to be strongest in North America. North America is the largest market for cannabis, according to the research. “The legalization of cannabis in most states in the US has generated a significant presence of providers,” it reads. Further, “the climate in North America is favorable for producing cannabis, and there is a great deal of area available for growth.”
North American consumers have a well-defined demographic profile: 55% are White, 20% are Latino, and 15% are Black. This information for the other regions was omitted from the report summary.
However, the report’s press release did note that the recent legalization of cannabis in some nations has prompted worries. There have been no research published on the possible health effects of cannabis usage, for instance, and the Thai Ministry of Public Health has not released any such studies, according to the announcement. Some have said that Thailand’s decision to legalize came “too much, too soon.” In Germany, people are expressing similar worries.
Several things seem to be driving demand. Medicinal cannabis is becoming more widely available as it undergoes decriminalization or legalization, and fresh studies continue to demonstrate the drug’s efficacy in treating a wide range of diseases. Additionally, the research discusses the emergence of the “cannabis lifestyle,” which has normalized cannabis use among “women, elders, parents, and others.”
For the cannabis market to continue growing, this analysis identifies improved banking services as one of the most pressing needs. “Financial institutions are a crucial growth area for the cannabis sector. Banks and other financial institutions have showed growing interest in cannabinoid-based enterprises in recent years, according to the paper. This is owing in no small part to the fact that cannabis businesses are typically in full compliance with monetary rules and guidelines. Because of this, cannabis firms now have access to a plethora of new opportunities for generating both capital and income.
According to SkyQuest Technology’s research of the cannabis market, the business’s prospects are bright right now. “The market is becoming increasingly competitive as the industry expands at a quick clip. Consequently, this is stimulating more competition and new ideas. More and more states are legalizing cannabis, and with that comes a surge in demand for both medical and recreational cannabis products, making the future of the sector look bright. Growth projections indicate that this sector will become one of the world’s most consequential in the next years.
Even though the cannabis market is always changing, most analysts expect it to keep growing. An estimate of $824 million was placed on the hemp market in February. Currently worth $17 billion, Forbes said in June that the cannabis tourism sector has the potential to grow much further in a post-pandemic world.
The German Crossroads—Somewhere Between Los Angeles and Germany
Of all the countries on the old continent, good old Germany is the one that is on the verge of a large-scale legalization of cannabis, which will significantly change the cannabis culture and will have to decide between two paths. Does it go the traditional way of the green Amsterdam school or does it follow the zeitgeist of the purple American-Californian philosophy in its then-new financially strong market? This editorial looks at the current situation in the economic powerhouse of the E.U., ventures a glimpse into the future and clarifies whether there might not be a third alternative path for Germany.
But before we can dare to look into the crystal ball and make predictions, we need to take a look at the current situation. An analysis of the current state before we can turn our attention to the target state. Germany does not have a national, recognized cannabis culture in the classical sense. Nor does Germany have any hotspots for cannabis culture, as Barcelona is for Spain or Copenhagen is for Denmark. While the judiciary in the south of the Federal Republic of Germany is still partly tough on small offenses, the police in other metropolises of the country are already wiser and in Berlin, Leipzig, Hamburg, or Cologne much more generous towards private cannabis users. Nevertheless, in the 16 years of Angela Merkel’s and the conservative CDU’s chancellorship, no sustainable cannabis culture has been able to develop. This does not mean that cannabis has not developed in Germany.
Since 2017, cannabis has been legally available for medical use. CBD products are everywhere and available at every second kiosk (bodega) and every Späti (the German’s favorite word for a small deli). Although the regulations are high you can find CBD flower everywhere, even the recognition factor has developed. The idea of a cannabis culture is in demand, even if THC is missing and cannabis containing THC still often has to be bought in parks around the corner or dubious areas. However, the current state of things also includes the fact that in the country of Bayer and BASF, a new branch of biochemical innovation has quietly emerged, which has already made financially strong experts in the industry such as Boris Jordan of Curaleaf become active. The great hunger in Germany for a social cultural embedding of cannabis and the German spirit of innovation in medical cannabis are two sides of the same coin, which could open up a path between green and purple fronts for Germany and, upon closer examination, make it a logical place for the further development of the worldwide cannabis culture. Clearly, the starting signal for legalization came from politics.
The new government elected in 2021 under the Social Democrats of Olaf Scholz has initiated a turning point. From a German perspective, this seems almost paradoxical, as Scholz took office promising to be the continuation and male version of Angela Merkel, who was known in U.S. circles as the so-called “Teflon chancellor.” So there is no point in looking at the current chancellor and his Social Democrats from the SPD on this issue, since he, like Merkel before him, does not let any issues stick to him. As a matter of fact, the focus has to be turned to the two parties that govern together with Scholz. The more left-wing Green Party Alliance 90/The Greens and the Free Democrats of the liberal party FDP. This government (SPD=red; FDP=yellow; Greens=green), known as the “traffic light coalition”, has defined in its coalition agreement that cannabis will be legally available in licensed specialized shops. The fact that three parties are governing in Germany is a novelty and had been expected with great excitement, as the last attempt at a three-party coalition had failed in the exploratory talks. The hype is real.
The legalization of cannabis had been on the agenda of the Green Party and liberal FDP for some time and was therefore an important unifying factor with media impact. The Greens were founded as a pacifist and alternative party and thus legalization was woven into the party’s DNA. The Liberals recognize the potential of a new market and trust in the individual’s personal responsibility in deciding for or against cannabis. They can also trust in the functions of a newly forming free market.
Despite all the justified criticism of capitalism, the example of cannabis shows some of the strengths of this economic system. The forces of a free market (with state framework conditions for all) set continuous improvement processes in motion, because companies want to set themselves apart from their competitors in terms of quality. Innovation, passion, and product understanding drive the industry to new heights. The customer and their needs must be understood and cannabis must be thought of in a holistic way in this new market. There must be full vertical integration without abusing the credibility of cannabis as a cultural property and allowing cannabis to degenerate as a profit-driven vehicle, as some German lobbyists are already trying to do. This is also a paradox, as some of them come from the CDU.
The best case of how to do it right is the company Boris Jordan invested in. Europe’s leading medical cannabis company—The Bloomwell Group. The Bloomwell Group, based in Frankfurt a. M., shows how cannabis in its dual function as a medicinal plant and cultural asset can work in a corporate context. The company houses three entities. Algea Care, which as the leading telemedicine company on German soil, stands for ensuring therapy and access to medical cannabis. Ilios Santé, the importer and trading arm, and the slumbering giant Breezy. The latter, through a cooperation in the near future, will enable the cashing of prescriptions for medical cannabis and position itself in the German market as the leading lifestyle brand in the cannabis space. Breezy will satisfy the hunger after legalization.
Germany’s sophisticated industry is already positioning itself as a global leader in medical use with cannabis in some areas, showing a clear case. The technical know-how and entrepreneurial spirit are there. The social desire for a credible cannabis culture is great and the political will for legalization is there. Breezy operates in a wonderful biotope where a thriving cannabis brand can manage to combine culture and technology. In my column for the nationally-published startup magazine Business Punk, I wrote about “the respectful treatment of culture.” Cannabis is the unifying factor of several cultures that need to be embedded industrially and legislatively in a sensible way. It is important to take the different influences and communities with us. My work as a designer in the fashion industry has shown me that it is important to use synergies. First anchored in the niche and subculture, I launched my own streetwear collaboration with soccer team VfL Bochum 1848, a first division team of the Bundesliga. Bloomwell not only knows how to use synergies, but also how to create them.
In my role as VP of Marketing, I was able to win rap star and entertainment mogul Xatar as our first brand ambassador and partner. Germany offers high-growth investment opportunities in the coming years and it’s up to the cannabis enthusiasts from the beginning to pave the market with an emotionalized approach and help shape our common culture.
Maybe we’re gonna be talking about the German Blue strains soon? Who knows…
The post The German Crossroads—Somewhere Between Los Angeles and Germany appeared first on High Times.
Sweetwaters the Core of Labat’s New Strategy as Group Unveils Plans to Set Up Commercial Seedbank, Expand Retail and Invest in Rolling Papers and Beverages
Labat to focus on finding the right ‘business combinations’
Labat Africa is finally hoping to pull off its first-mover advantage in the cannabis value chain with a more aggressive strategy after the pounding of the pandemic and a lack of a clear regulatory framework. The JSE-listed company has been burning through cash but is a going concern because of drawdown funding it has secured from Californian investors and its recent listing on the Frankfurt Stock Exchange.
The company gave an insight into its strategy when it revealed its latest financial statements to the public on 30 May 2022. Although the damage was bad, it’s not out of line with similar first-mover-advantage groups in all newly-regulated jurisdictions.
Labat’s strategy to seize the cannabis value chain in the course of the next 12 months is still being hampered by the restricted regulatory framework, but that looks set to change in the course of the year. Labat’s cannabis subisidaries fall into its healthcare division. They are: Labat Pharmaceuticals, Sweetwater Aquaponics, Ace Genetics, Labat Hemp Processing, Cannafrica and Biodata. Labat’s strategy going forward is to find the right “business combinations” to maximize efficiencies and get the Group purposefully heading towards profitability.
It says “the company’s vision remains to be the number one cannabis/hemp company in Africa and to maintain that position. The agreements over the last two years ensure that the company is on a profitable and value-creating path. Labat has made massive strides in laying the ground-work to becoming a Cannabis Powerhouse in Africa” It added that “Labat measures its success beyond yield and capacity; the pursuit of quality for a long-term competitive advantage drive to its business strategy”.
Sweetwaters Aquaponics: a ‘quantum shift’ for the group
Labat says the acquisition of SAHPRA-licensed Eastern Cape facility, Sweetwaters Aquaponics on 1 March 202,2 led to a “quantum shift in the busines, enabling the export of product to overseas customers, with the initial initial customer in Australia ordering a second batch of flowers, following the successful testing of the THC content (26.7%) by SAHPRA.
Ace Genetics: commercial seedbank to be set up this year
Ace Genetics is to be set up under license at Sweetwaters, a breeding room is under construction and a commercialization strategy is being put in place once the right genetics have been identified. The company says the planned date of transfer of all seeds and mother plants to Sweetwaters “is June 2022 with seed production expected to commence on the 1 August 2022 and the Company will be going to market with its own online Commercial Seedbank immediately thereafter. “
Echo Life deal gives Labat Exclusive Rights to Axle and Axle Pre-Rolls
Labat said last November’s acquisition of Miami-based Echo Life “greatly complements the Healthcare retail business through its unique range of product offering that will be marketed and sold through the CannAfrica retail stores as well as the Labat online retail platform”. In terms of the deal Labat will have the exclusive rights to distribute Echo Life’s pre-rolled hemp smokeable Ace and Axle as well as other products.
CannAfrica introducing CannAfrica ‘Kiosk Model’ in 5 Shopping Malls
Labat has switched tack on the roll-out of its retail brand CannAfrica; it says the “main objective that underpins the new strategy is the aggressive rollout of corporate owned stores, some of which, will remain corporate-owned, and others, once profitable, to be migrated to franchisees, who are fully paid up in respect of franchise rights.
The corporate-owned stores will take a different approach to the Melrose Arch, Hartbeespoort Dam and Cape Town stores which are larger stores with significantly higher operating costs.
The ‘kiosk model’ is being implemented in malls and larger shopping centres and Labat is set to conclude a deal with the Company is at an advanced stage of concluding a deal with the Mowana Property Group to open up CannAfrica Kiosks in five of their prime properties namely:
Cresta Shopping Centre (Gauteng), Westgate Mall (Gauteng), Menlyn Shopping Centre (Pretoria East), Castle Walk Mall (Pretoria) and the Pavilion (Westville).
The five kiosks should be opened by the end of June 2022.
Labat says it has identified that, “as an industry issue, there are no fully dedicated CBD stores operating in South Africa; therefore a considerable amount of time and effort has been put into further extending its product offering. The product lines which the company will be expanding into are minor/rare cannabinoids, vapes, grow kit accessories and other paraphernalia”.
The Company also plans to turn the CannAfrica kiosks and retail stores into “’dispensaries’ for the Biodata Research Project, for the legal dispensing of cannabis flower, other medicines and THC products.
Biodata Medicinal Cannabis to Become ‘Dispensary’ Product
Labat says the “Biodata research project is gaining traction” and plans to use the planned CannAfrica Kiosks as “physical-sign-up-points for the study”. It says the kiosks will also serve as Biodata dispenseries for medical cannabis for pain management. It says it is also “engaged with” a number of vape stores to also become Biodata “dispenseries” once regulatory approval is in place.
Rolling Papers into the Value Chain
Labat says it “is currently finalising agreements with a rolling paper specialist company that focuses on cannabis rolling paraphernalia. The business was running informally. However, there has been great traction on the brand and products with sales last year averaging 200 units per day. The business has now been improved structurally and has a focussed strategy of expanding into parts of Africa and the USA. The main challenge facing the targeted expansion Is the lack of working capital which approximates R500 000 for the first three months mainly for stock purchases to fulfil orders. Labat has engaged the business partner around a possible share transaction as well as a bridging working capital facility over the first three months. The process is currently in the due diligence phase. For its year end March 2022, the company earned revenues of R1.8 million. These products are complementary products for the CannAfrica Stores.
CBD Infused Drinks to Provide Ammo for Retail
Labat came up with a new cannabis retail strategy in March 2022 to expand its national footprint and visibility and to increase product offerings,. It believes “a retail beverage offering is indispensable”.
It says in an Enterprise Development initiative in 2020, Labat was introduced to a start-up cannabis beverages company which it still in equity negotiations with. However, “the company has developed three recipes in collaboration with the CSIR, and have finalised their packaging and branding architecture, and have delivered a premium product, as sample drinks. The product is superior, and of a quality that Labat want to be associated with. The company will now do their first production run, in order to show capability and test the market. A draft Term Sheet in place, to be concluded in the next phase of the Company’s deliberations. It is envisaged to be a share-based deal, for 30% equity, and access to evolving retail distribution channels.”
SAMES to be the Tech Hub
The South African Micro Electronic-Systems Proprietary Limited (“SAMES”) will “remain a technology hub and will also hold the healthcare divisions intellectual property, formulations, ‘know-how’, seed banks, extraction technology, strain development and other technologies needed in complying with Good Manufacturing Practice (“GMP”) standards, including European Union GMP, where applicable”. It says that although SAMES had a healthy start to the year, revenues have decreased “mainly as a result of a worldwide shortage of semi-conductor chips”
Logistics business to take care of transportation and warehousing
Labat’s Logistics, although not directly part of the Healthcare division, “will form an integral part of the Healthcare operations with both transportation and warehousing of raw material as well as final products. These are explicit requirements in respect of the GMP accreditation. Furthermore, the final product of the pharma business is expected to sell for between R800 and R1 000 for a 20ml bottle, which will need to be securely transported. The company’s marketing efforts are showing acceptable results and Labat is well positioned for growth based on work completed over the past three years. The Company continues to provide logistic services to large corporates, when and as required.”
Read all Cannabiz Africa coverage of Labat here