Before the global supply chains can recover from the upheaval triggered by COVID-19, the world is again reeling from the disruptions caused by Russia’s decision to invade Ukraine. The resultant supply chain challenges are starting to bite within the cannabis industry, as is the case with other sectors of the economy.
Experts say the supply chain challenges facing the marijuana industry could possibly last for the rest of this year, maybe even longer. This is particularly likely for companies categorized as ancillary to the marijuana industry, such as those providing packaging and specialized consumables to marijuana companies. The solvents used in the production of marijuana concentrates are one example of the specialized consumables that are bearing the brunt of the disruptions resulting from the invasion of Ukraine by Russia.
Packaging is likely to be hard hit because every cannabis brand wants to be unique and stand out from all others, which often means relying on foreign-sourced packaging materials. As the turmoil due to the pandemic showed, depending on offshore suppliers can be extremely troublesome in times when the entire global economy is shaken or brought to its knees by one factor or other.
Liz Geisleman, CEO of Colorado-based Rocky Mountain Reagents, says that the ongoing war in Ukraine just made the market for petroleum “go crazy.” She says as a result, fuel prices have given marijuana delivery companies a body blow, and the knock-on effects are spreading to other commodities, such as the ethanol used in cannabis processing.
Geisleman adds that the full impact of the rise in fuel prices hasn’t been felt yet because there is a lag between sourcing crude petroleum and refining it into final products that are released into the market. Once a few months elapse, the high cost of the recently procured petroleum will hit home, and many cannabis companies could find themselves in a tight spot, especially if they haven’t rebuilt their cash reserves that were zapped during the pandemic. According to Geisleman, she hasn’t seen the kind of price instability in the current solvents market in her entire career spanning 25 years.
And things could get worse if China joins the war in support of Russia and the United States responds by imposing additional trade barriers or tariffs on Chinese products coming into the country. Already, a 25% tariff imposed during President Donald J. Trump’s time in the White House has made Chinese-sourced inputs for the cannabis industry quite expensive.
With the rising costs of labor, the shipping delays and price increases, players in the marijuana industry may be in for some rocky times that could leave only companies with deep roots such as Red White & Bloom Brands Inc. (CSE: RWB) (OTCQX: RWBYF) standing.
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