As California begins to implement the regulations surrounding its new recreational cannabis market, industry insiders are adapting to the state’s new distribution process and finding that it’s now excessively difficult for cultivators to get the product to shelves.
In California’s new adult-use distribution system, the state has mandated that licensed middlemen take product from cultivators to retailers.
The most important part of this process for cultivators is to pick the right team to spread their product throughout the state, says Hezekiah Allen, the executive director of the California Growers Association. To help facilitate this new reality where licensed distributors are required, the California Growers Association has spent recent months working to get cultivators and the newly licensed distributors in the same rooms.
“Helping producers meet distributors has been a major focus of our regional council in recent months,” said Allen. “Our local partners have hosted a handful of events focused specifically on helping producers meet distributors with a few more in the planning phase now.”
But unfortunately, it has not proven as easy as getting the two points in the supply chain together to mingle. Allen says there aren’t enough distributors, “and the middle-person has long been a costly step in the supply chain.” He believes it is critical in these early days of regulated cannabis that the industry focus on building robust, transparent and competitive supply chains that have integrity.
“Many growers hope that distributors will help to ensure revenue is distributed more equitably throughout the supply chain than was possible under the collective model. Unfortunately, until there are a lot more retailers, market access will continue to be restricted and concerns about market manipulation will persist,” said Allen.
Many growers feel that distributors are an unnecessary step and cost in the supply chain and would like to be able to self-distribute, according to Allen.
“Nearly everyone thinks it is bullsh*t that big businesses won the ability to vertically integrate, but threw small and mid-sized businesses under the bus on self-distribution,” he said.
Allen was able to find some hope in the situation, saying he was most excited by some of the partnerships that are emerging between “values-based” distributors, growers, and retailers. “Things like open book accounting and marketing that is based on connecting consumers and farmers are blazing the trail to a future that reflects the best of California cannabis, not the greed of business as usual,” he said.
Besides the number of distributors currently up and running, varying levels of experience have also proved to be an issue. Cultivator Wes Martin, of Wes Martin Cannabis, told Cannabis Now that he thinks most distributors are undereducated about cannabis.
“Things would all be better if every distributor spent just one season out in the hills,” Martin said. “At least then they would know simple things like trim-to-herb ratios, wet versus dry weight, and how to deal with both.”
In Humboldt at FulSol Farms, Chrystal Ortiz echoed Martin’s concerns. Like many, she considers the concept of distribution to be a good thing, but the shortcomings in the process are hitting small farmers hard.
“It’s great for big business and bad for small business,” said Ortiz. “I understand the state wants to control the taxes, supply chain, and all that stuff. But I personally feel like it’s redundant.”
“If they believe in their [forthcoming] track and trace system, farmers with good business practices should be able to handle paying the taxes and doing everything they’re supposed to do,” Ortiz said.
Ortiz admits those in super-rural areas like her will need some way to get their cannabis to market all over the state, and said she is one small farmer who does want a distributor. She pointed out her luck in being able to work with the Humboldt Sungrowers Guild. Ortiz doesn’t envy others who don’t have this kind of local distributor. From what she has seen, it looks like the rest of the market is going to face fairly difficult problems, particularly when it comes to bulk wholesale flowers — the kind of bulk flower they’d previously brought directly to the dispensary without a problem.
“For products, most of those are going to be shelf stable, most can move along the supply chain without much problem. But for the flower itself, most of the California industry is based on relationships. I don’t think these corporate distribution companies have the relationships or the flower knowledge to really make a good decision,” said Ortiz.
Ortiz went on to speak about putting the weight of the taxes and testing on distributors. For people a couple hours from town, getting that lot of cannabis to the distributor so they can send it out for testing is a big expense.
“In order for that to be affordable because the test right now is $575 to $800 dollars, you want to be able to bring up to 50 pounds to make it worth it. So you have now paid a transport company to get your batch to the distributor, the tester has now had to come test the product, and all of this had happened on a one-way supply chain,” said Ortiz, “It can’t go back to the farmer, so what then? The distributor has to sell that cannabis, so it’s on me to just sell it to that person for whatever I can? That’s a really vulnerable situation.”
TELL US, are you anticipating a distribution bottleneck?