Fuel costs and canceled orders: How the US-led war on Iran is hurting cannabis

Along with price compression and tax woes, geopolitics continues to trouble the legal cannabis industry.

A sharp increase in fuel costs attributed to the U.S.-led war against Iran is rattling the cannabis industry supply chain, forcing retailers to reevaluated their purchasing strategies and adapt to new consumer behavior as manufacturers in need of shipping solutions ponder “a full freight reset, operators told MJBizDaily.

But Iran’s chokehold on the Strait of Hormuz is also leading faraway suppliers of raw materials and key basic goods to cancel orders for their U.S. customers, adding a new wrinkle to the Trump administration-era trade war woes.

The disruptions underscore “how little redundancy actually exists in cannabis supply chains,” said Alex Gonzalez, the co-founder and president of Utah-based packaging company Calyx Containers.

“That fragility doesn’t show up in normal conditions, but it gets exposed fast when allocation and volatility hit,” he added.

“The reality is this market doesn’t have time to prioritize redundancy and is far less resilient than it looks on the surface.”

What the rising cost of energy means for the cannabis industry

As consumers watch their gasoline bills increase with every trip to the pump as the price of crude oil hit a four-year peak, cannabis operators and ancillary businesses alike have had to make hard decisions.

“We’ve had to reevaluate minimum order thresholds and shipping fee structures to make the economics work,” says Bryan Gerber, co-founder and CEO of Hara Supply and Hemper, a preroll supply company in Las Vegas.

The “unpredictability” caused by rising fuel costs is also creating puzzles for buyers beyond how to pay for it all.

“Both distributors and brands now need to start thinking about adjusting routes and consolidating shipments,” Gerber added.

“That can cause a domino effect, with retailers needing to deal with inconsistent inventory levels.”

Another problem on top of tariffs

The increased fuel costs are piled on top of existing supply-chain problems stemming from President Donald Trump’s freewheeling use of tariffs, with wildly varying duties slapped on goods from certain countries that have frequently changed. 

For now, 10% duties across the board apply until July, when Congress has the authority to renew them. But now there’s a new front to the trade war, Calyx Containers’ Gonzalez said.  .

Nearly all the raw materials that end up in cannabis industry end products – such as product packaging – originate in Asia, where producers are invoking a concept called “force majeure,” he said.

That’s a clause included in many contracts that allow a company to pause deliveries, reduce quantities, and delay timelines without penalty, citing forces outside their control.

In plastics, this “doesn’t just mean delays, it means suppliers prioritizing who gets product and who doesn’t,” he said.

“That leads to allocation, shortened commitments and sudden gaps in supply that operators can’t easily backfill.”

Higher shipping costs means more burden for retailers

Cannabis stores located in big urban markets have a peculiar challenge. Due to limited real estate, they have limited storage space.

Some New York City locations often need frequent small deliveries because there is not enough room on site for large storage, said Vince Ning, CEO of major nationwide distributor Nabis. That’s adding to retailers’ cost burden.

“Retailers in places like Manhattan can’t hold inventory, so they are ordering smaller and more often,” Ning told MJBizDaily. “That gets expensive quickly,” .

In response, some stores and brands are considering cutting down on the number of products they offer to focus on faster-selling items rather than having a full catalog, Ning said.

“Some are consolidating SKUs and leaning into their top movers rather than pushing full catalogs,” he said.

Higher costs for third-party shipping

The pain is felt by ancillary companies that, unlike cannabis operators, rely on major third-party shippers still unwilling to handle a controlled substance.

Recent increases in carrier rates, including bumps from UPS and FedEx in the 5.9% to 8% range across service tiers, have accompanied the fuel crisis.

That’s increased the overall costs for Philip Martin, the president and COO of Denver-based wholesale accessory distributor LuvBuds, closer to 8% to 12%, he told MJBizDaily.

LuvBuds had been able to absorb the higher freight costs for a while, but rates needed to go up this year with other compounding increases, he said.

“What we’re seeing isn’t just fuel, it’s a full freight reset across the industry,” Martin said.“We’re seeing fewer, more efficient deliveries that protect both our margins and the customer experience.”

Higher freight thresholds, where suppliers implement minimum order sizes, also pass costs along to retailers – and, in turn, lower the number of orders.

What might appear to be a logistics adjustment at the distribution level can make for a supply chain that is more expensive and less predictable.

“The goal is simple: fewer, more efficient deliveries,” he said.

Cannabis operators in rural markets feel unique strain

In rural areas, smaller stores are already consolidating purchases so there is less frequent need for pickups, said James Stephens, CEO of Missoula, Montana-based cannabis beverage company Sinful Brands.

Retailers in these markets have cut their  orders. And consumers are also changing their habits, he added, putting a bigger emphasis on the convenience of a store’s location over what is on their menu.

“Consumers are buying from the dispensary that is closest or most accessible, even if it is not their favorite store,” he said.

How the Iran war could raise cannabis prices

So far, cannabis consumers have been insulated from direct effects of the fuel and trade shocks, according to price figures. But that may not last.

Most markets have seen wholesale prices steadily decline, leading to decreased sales revenue even as retailers ring up more and more product. That’s in part because operators are aware that price hikes only encourage the illicit market.

However, they may soon no longer have that choice, said Jason Harris, the founder of Las Vegas-based glassblower Jerome Baker Designs.

“Consumers are going to see cannabis prices at the dispensary increase, as well as tertiary products like glass, rolling papers, and lighters,” he said.