Here we go again..
Another state, Maryland, begins recreational cannabis sales and within just a week, shelves are empty. Mainstream media builds these situations up to look like “everybody is crazy for cannabis and the stores can’t keep up.” But in reality, there’s more to it than that.
Of course, there is a surge of interest and sales in the first week due to excited consumers lining up to purchase cannabis legally for the first time. But the problem stems from an immature market that doesn’t yet have a well-established supply-chain to keep up with the immediate demand. Every state launching a new program experiences these growing pains – just look at Nevada this past summer. But states that have long-established cannabis programs are able to respond more rapidly. Colorado experienced a similar shortage upon launching recreational, but thanks to the significant size of their market, dispensaries were able to restock their shelves overnight – although that didn’t stop them from running out day-to-day and literally turning away customers due to lack of inventory.
So why might California be different? For starters, California has had an established medical cannabis program since the late 1990’s, so their supply-chain is very well-established and in fact, many say that it’s overflowing. Additionally, the state is taking extra precautions through the recently released emergency rules and regulations to avoid a shortage.
Until July 1, 2018, licensees are allowed to conduct commercial cannabis activities with any other licensee, regardless of their license being designated as A or M. (For those who don’t know, the A and M designations are meant to differentiate medical [M] and recreational [A] license types.) Once the program passes the July 1, 2018 deadline, licensees can only conduct commercial cannabis activity (product/wholesale transfers, etc.) with other licensees of the same designation. This will reduce the pool of viable product partners instantly and create a higher demand from retailers.
By allowing all licensees to conduct commercial activity with one another for the first six months, regardless of their license type, it opens the door for the highest possible number of supply-chain options for retailers to turn to. For instance, if my recreational grower runs out of supply in the first week, I can reach out to a medically licensed grower to restock my recreational dispensary shelves, and vice versa.
So will an established supply-chain and the allowance of intermingling license types for inventory transfers, sales and purchases be enough to avert an initial shortage? Even in the state that has claimed an oversupply of cannabis for months, I don’t think anyone can have enough product on hand in the first days and weeks to avoid running out.
When you’re launching an adult-use program for the first time, it’s not about the demand or your (or your supplier’s) ability to keep up; it’s about the novelty of purchasing cannabis legally for the first time in a consumer’s life. Even those who have been purchasing medically in the state for nearly two decades will make sure to line up for the historic opportunity to legally purchase it without a medical card.
California will have day-to-day shortages just as Colorado did, but stores can prepare themselves by planning to restock their shelves almost every night for the first week. Your supplier’s are going to face more demand in that first week than they’ve ever seen before, so make sure you have backup supplier’s lined up.
And remember – they can be either medical or recreational licensees, so you can be confident that even when you do run out in a given day, you have multiple partners lined up to remedy that.