What California Can Teach About Cannabis Supply Chain Issues

Amid the post-pandemic recession, governments say the cannabis industry could diversify regional economies, add value to the flower at source, and improve local wages. Their thesis? Increase the number of small businesses involved in cannabis production and integrate technology into this process.

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Although the cannabis market is growing faster than that of wine, beer and tobacco combined, the development of the industry and its economy is hampered by the weight of anachronistic regulation and the absence of coherent political reforms. .

The federal prohibition of marijuana particularly affects the efficiency of the cannabis supply chain. It is the network of suppliers, producers, traders, goods, services and information that makes large-scale legal cannabis production possible.

As with other products such as oil, meat, corn, dairy products or medicines, an incomplete supply chain generates price increases, reduces the quality of the product available to local consumers, reduces the technological progress and stimulates illegal trade.

While there are no recipes for creating an efficient and fair cannabis supply chain, some key factors such as technology and organic certifications should be considered when regulating this industry from the ground up. .

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Cannabis supply chain and production (in)efficiency

Jesús Burrola holds a degree in Supply Chain Management from Arizona State University and is the CEO of POSIBL, an innovative cannabis farm and powerhouse of several major California brands. Prior to POSIBL, Jesús worked for 15 years in sales, management and operations for the largest building materials distributor in North America.

“The cannabis supply chain is still in its infancy and there is a lot of inefficiency in general. Because it’s not a free market, it’s a market that has to adapt to all the laws and regulations of different places. These laws therefore make the chain much more complex and much more inefficient as well,” Burrola said in an exclusive interview with El Planteo.

The CEO explains that in the United States, cannabis producers cannot devise a coherent business plan to supply the whole country. The lack of comprehensive regulation means each company must set up its own supply chain in each state.

“If you’re a Budweiser, you might ask yourself, ‘Where’s the best place to grow? Where is the best place to craft? Where is the best place to distribute? In cannabis, that doesn’t exist yet.

Cannabis Supply Chain Integration: Vertical or Horizontal?

Burrola explains the two main models of cannabis supply chain integration, the vertical model and the horizontal model. He maintains that the latter configuration is the most efficient since it allows the specialization of producers, technological innovation and cost savings.

A vertically integrated cannabis industry involves a regulatory framework that requires companies to produce cannabis entirely within the same company. An old model of serialized production that reduces the complexity of government controls and simplifies the collection of taxes from a few large companies.

It is characterized by subjecting cannabis businesses to complex and costly licensing processes, often limiting access for smaller cannabis businesses. Plus, they’re inefficient, because it’s impossible for a 21st century business to run an entire supply chain efficiently. Thus, the vertical model predominates where there is no federal cannabis regulation.

Burrola explains that, without consistent cannabis regulation, companies must create supply chains under different laws, adding that “there are two theses of how this business should evolve, which are quite different.”

“The first is that all companies must be vertically integrated. Which is a bit inefficient (wanting to run, wanting to start 6 or 7 businesses at the same time within a business is quite complex) and capital intensive, which is quite difficult to obtain in cannabis. The other idea or the other thesis is where we operate: horizontal integration. We are a supply chain COP for many top brands that do not grow cannabis.

A COP or “Customer Order Point” is a node at which supply chain processes are decoupled. It guarantees brands (cannabis brands in this case) standardized management of their production and packaging, and the sending of personalized order forms to retail distributors.

“We are growers of many of California’s top brands. The idea is to make the supply chain and the industry more efficient. If you are a cannabis brand, you should be dedicated to it. Don’t buy a farm. You would be very inefficient because the learning curve in farming is huge, very technical.

Burrola points out that there are opportunities for every company to focus on its know-how and add value with its expertise. “We get packages from 15 brands in California and we create a business plan, we forecast monthly volumes and how much product they will need. The price varies according to the specifications of the product containing THC”.

“We work with brands that don’t have all the licenses. They work with licensed distributors, producers and packers. They are dedicated to building their brand and demand, while the product goes through pure licensed channels, which saves them money. This allows them to focus on what they know, creating demand and recognition for their cannabis brand.

RELATED: The Green Rush Isn’t So Green

Organic Certifications: Valuing Cannabis

Organic products are sometimes considered a niche economy. But, are these certifications more profitable than current extractivist/intensivist agro-industrial models?

“I believe the value of cannabis lies in its transparency, in the scientific information you provide to the consumer about your product. Basically, how strict are the rules for legal growers. Why are they so strict? Because it’s not a tomato, cannabis is medicine,” Burrola explains from his office in Salinas, California.

“The cannabis we sell comes with a lab certificate. Although there is no federal organic certification, in California we apply organic products. We use a blend of 50% coconut and 50% redwood, a very common tree here, as a propagation medium and some regulated salts, which we will stop using when there is national organic certification.

“We also have a greenhouse that allows us to monitor pests. We use colonies of helper insects to control pests such as thrips and aphids, for example”.

Precision Greenhouses: Controlled Agriculture Technology and Supply Chain Efficiency

When it comes to the technology needed to make cannabis chains more efficient, Burrola stresses the importance of considering operating costs (mainly energy and labor), infrastructure automation, and remote monitoring, using technologies such as the Internet of Things (IoT).

“Our greenhouses are equipped with sensors inside and outside to measure the temperature. These sensors communicate with an algorithm that we have programmed. We decide the temperature, humidity and sun intensity in the greenhouse? explains the CEO.

Likewise, Burrola emphasizes the importance of cooperation with other industries in the sector to achieve greater efficiency.

In collaboration with a Colombian company, POSIBL is testing an IoT system, to detect parasites and diseases, through a camera and a robot (even before the human eye can see it).

In addition, the company is working on new greenhouses with an energy cogeneration plant thanks to the recovery of the gases emitted by the installation.

“Everything is automated, including hydroponic irrigation, fans, windows, etc.,” adds Burrola. “The idea is to try to automate and reduce the risk of human error. Not everyone enters the greenhouse. We treat it like a hospital.

Focused on automation

When it comes to infrastructure, Burrola adds that there are leading global companies dedicated to precision agriculture such as Priva or Argos, “who are focusing on automation”.

—Are there already integrated companies that can “sell you a combo”?

Yes of course. They design a greenhouse for you from start to finish. It requires a lot of engineering. It is very difficult to add components to a greenhouse after the infrastructure is in place.

—How many companies revolve around building and administering a precision greenhouse?

More than 30. These are companies with extensive experience. It’s not new. Specifically, Dutch companies are leaders in greenhouse technology.

—Faced with a possible federal legalization of cannabis, what would be the sectors that could be reconverted to produce legal cannabis efficiently?

Ornamental flower growers, no doubt. This whole area of ​​Salinas and Santa Barbara, the largest greenhouse area in California, before NAFTA, was a great flower-growing area. In fact, right here chrysanthemums were produced.

And he concludes: “Mexico also has an installed capacity to produce organic and export. There are many greenhouses already installed in Mexico and the cost curve is much lower than in the United States. In addition, the favorable climate. For example, the cost of producing tomatoes in Mexico is one-third the cost of production in the United States. »

About Dianne Stinson

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