Marijuana supply chain: profits and headaches
The marijuana supply chain is an interesting market to follow.
Like any agricultural product, there are ebbs and flows to its supply and demand.
However, there is one caveat in the marijuana supply chain that makes things a bit trickier: in most states, cannabis products can only be sold and consumed within the state that the original plant was grown. Given that marijuana is technically illegal from a federal standpoint, bringing said plants across state lines would bring about potentially harmful (and financial) ramifications.
However, from a purely supply chain standpoint, the marijuana market strikes a similar delicate balance to other perishables. Luckily, unlike other fruits and vegetables, marijuana can be grown year-round, so there is no “peak season” for freshness. But climate change and droughts can certainly hinder production.
Marijuana is legal, at least from a state perspective, in 21 states as of this writing. These states include Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Massachusetts, Michigan, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Washington, and Washington D.C. Starting next week, recreational marijuana sales will be legal in Maryland, and over the next two years, will be legal in Virginia and Minnesota. All told, from these states, the recreational marijuana industry is poised to produce over $25 billion in revenue in 2023 (and that is a conservative estimate).
In my home state of Massachusetts, which decriminalized small amounts of recreational marijuana in 2008 and fully legalized recreational marijuana in 2019, recreational cannabis prices have plummeted due to a massive shift in supply and demand. In October 2022, the average price for a gram of flower dropped to $7.76, an all-time low, according to the most recent data from the state’s Cannabis Control Commission. The simple explanation for these startling numbers is that the state is experiencing an oversupply of cannabis, spurred by an uptick in cultivation licenses. Needless to say, cannabis is no longer worth its weight in gold.
From an actual supply chain standpoint, there are many entities that need to co-exist. Marijuana, like all agricultural products, starts with a seed. Companies at this stage are the first point of harvesting quality marijuana. Companies, growers, or cultivators (depending on what they want to be called) harvest the seeds and either process the flower themselves or sell them another entity to dry, trim, and prepare the flowers. Once the flowers have been dried, they move on the “finishing process” which can be in the form of bud, concentrates, or edibles. Every entity that touches the product needs to be fully licensed in the state that it is conducting business, and then the product moves on to a distributor. Marijuana distributors will ship the final products to a dispensary and / or warehouse goods that are waiting to be sold.
But aside from the supply chain issues mentioned above, there are other implications for the marijuana supply chain. Namely, what is the impact on supply chain workers if they choose to enjoy recreational marijuana? There are two major industries that are impacted by marijuana testing: transportation and warehousing.
Marijuana Supply Chain: Transportation
I will not go too deeply into the effects of marijuana, but when compared to the effects of alcohol, the results are interesting. Clearly no truck driver, or anyone for that matter, should be driving after using alcohol or recreational marijuana. The difference, however, is how long the substance can stay in the blood stream. In general, a blood test can measure alcohol in your body for up to 6 hours after your last drink, while breathalyzer tests work for between 12 and 24 hours. Urine tests, such as the ethyl glucuronide (EtG) test, are also effective for around 12-24 hours after use. Typically, THC, the psychoactive component of marijuana, is detectable for up to 90 days in hair, anywhere between 1 day to a month or longer in urine (depending on how often the individual uses it), up to 24 hours in saliva, and up to 12 hours in blood.
More than 100,000 truck drivers have been removed from the industry in the past three years due to positive marijuana tests. And most have not returned, according to a new study by the American Transportation Research Institute. ATRI released the report, “Impacts of Marijuana Legalization on the Trucking Industry,” on June 5 in response to concerns about the increasing use of marijuana by truck drivers largely believed to be due to the recreational legalization of marijuana in 23 states. Drivers can be placed in a prohibited status even for testing positive while using the drug for medicinal purposes. The ATRI report seeks to shed light on why so many medium- and large-truck drivers are leaving their jobs after failing a marijuana test, and likely accepting lower paying jobs rather than returning to the current nationwide driver pool that already is critically short.
The ATRI analysis also documents the strategies and implications of the two pathways the federal government can take in response to advancing legalization efforts. The first pathway, maintaining the current prohibition policy where marijuana remains a Schedule I drug, would “continue the trend of removing thousands of drivers annually from the industry through positive tests for past marijuana use”, ATRI said.
The second pathway, a scenario in which the federal government eases restrictions and possibly removes marijuana from the Schedule I designation, has significant challenges as well. Prior to any federal legalization action, the report identifies several protections that must be in place for employers in safety-sensitive industries. These include the “development of a nationally recognized marijuana impairment test and impairment standards, as well as provisions that protect a carrier’s ability to screen employees for drug use.”
Marijuana Supply Chain: Warehousing
In a conversation I had with Steve Banker last year, we discussed the great resignation. In 2022, more workers had quit the labor force than had joined it; millions of people quit their jobs. Jobs in retail, restaurants, trucking, and warehousing are particularly hard to fill. Meanwhile, the growth in e-commerce is driving the need for more workers for the warehouse.
To make up for this gap, it became apparent that companies need to adjust their policies around who qualifies for a job and be more open to hiring those with criminal records. Over the last few years, criminal records have been more scrutinized, as more people that have been incarcerated or arrested for marijuana charges have been released. But depending on the company, prior marijuana charges or a positive marijuana test can make a big difference in the hiring process.
It is also interesting to watch how some of the country’s largest retailers and warehouses are changing their tune. In June 2021, Amazon announced that it would exclude marijuana from its comprehensive pre-employment drug screening program for unregulated positions (e.g., positions not regulated by the Department of Transportation), and those not within Amazon Air. The company also reinstated the employment eligibility for former employees and applicants who were previously terminated or deferred during random or pre-employment marijuana screenings.
