Russian invasion of Ukraine further upends cannabis supply chain

Image depicting supply-chain problems

Global supply-chain woes – first triggered by the coronavirus pandemic in 2020 – have been exacerbated by Russia’s invasion of Ukraine, and the U.S. cannabis industry is expected to feel the added fallout for months.

Several ancillary company executives told MJBizDaily the problems are likely to continue this year, further forcing up costs and making it even more difficult for companies to secure key supplies such as specialty packaging, chemical solvents used in concentrate production and stainless steel.

“The two big pain points are going to be the solvents – the extraction piece, the consumables on that side – and packaging, because everyone wants a specialized brand,” predicted Liz Geisleman, co-founder of Canna Consortium, a group of 16 ancillary businesses that cater to plant-touching marijuana businesses.

Geisleman, who is also acting CEO of Rocky Mountain Reagents in Colorado, said Russia’s war on Ukraine has caused the global petroleum market to “go crazy.”

The war has not only resulted in a spike in gasoline prices – which has zapped cannabis delivery firms – but also has caused an increase in prices for substances such as corn and ethanol, which are major product exports from Ukraine to the U.S., Geisleman noted.

The ripple effects are hitting other natural resources, some of which have delayed cost increases because of the time it takes to refine fuels such as natural gas, propane and butane, she warned.

“If (marijuana businesses are) using any kind of solvent, all of that is going to skyrocket in the next month or two, because it hasn’t hit the refineries yet,” Geisleman said.

“They’re going to see it in three to six months,” she said, adding that prices for “solvents for consumption in the concentrate market are the most unstable I’ve ever seen, in 25 years of working in chemical sales.”

And the situation could worsen, depending on whether China decides to support the Russian invasion and if the U.S. imposes additional sanctions on Chinese imports beyond the 25% tariff established during the Trump administration.

“All your plastic packaging, circuitry, controls … everything coming out of China is in question right now,” Geisleman said.

Domino effect ongoing

Even before the Russian invasion in February, the U.S. marijuana industry was feeling the coronavirus-induced global supply crunch: Companies faced labor shortages, rising prices for equipment and materials, shipping delays and more.

That has forced many companies to reassess and revamp procurement strategies as their margins dwindled.

Rocco Ianapollo, chief brand officer at Cannabis Kitchen Supplies, a Colorado-based distributor for cannabis retailers, manufacturers and growers, said the situation has created a global domino effect in which shortages in one industry have led to ongoing problems elsewhere.

And the cannabis industry has not been immune, he noted.

“Whatever has corrected itself is equally weighed down by things that haven’t corrected themselves,” Ianapollo said.

“We saw a lot of suppliers and vendors changing their accounting practices. People that extended terms all of a sudden stopped doing that, because they didn’t have the cash flow. That still persists today.”

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Geisleman said that after the COVID-19 pandemic began in early 2020, it seemed like one major disruption after another popped up, including weather-related problems with oil refineries in Houston, governmental upheaval in countries such as Brazil and, now, the war in Ukraine.

“It all started there,” Geisleman said of the pandemic. “But it really exposed how vulnerable we are in every industry, dependent on things that don’t come from this country typically.”

She noted one of the latest shortages to cause a price spike is in stainless steel. That, in turn, has caused a 25% price increase for “anything in a can” that might be sold at grocery stores.

Bill Gorman, sales director for Botanical Extraction Huber USA, said shipping prices have skyrocketed for pretty much all international goods, because of the increase in fuel prices.

That is affecting every aspect of the supply chain, he said.

“Now, with gas prices, flights and cargo is getting just absolutely astronomical. Four X and going up,” Gorman said. “If you’re not having supply-chain issues, then you’re not selling or buying anything as a consumer on the commercial side.”

The shortages aren’t only on the supply side, either, he said. A major issue now is lack of labor, which has led to longer wait times for goods to be delivered.

“I’ve been waiting for two weeks for a shipping container that landed in North Carolina to get here,” Gorman said.

“We keep getting pushback, saying, ‘We don’t have the resources, we don’t have the manpower.’ And this is in Wilmington. It’s not a busy port, in comparison to California,” Gorman said.

“It’s not only the product itself. It’s the manpower to get that product to you.”

Preventative steps

Gorman advised others to implement what he calls “The three Ps: patience, patience and Plan B.”

An obvious step, he added, is to line up a secondary source for any materials that are vital to the core business, in case the primary source falls through.

“It could be two. It could be six,” Gorman said of the number of suppliers a given company should have at the ready. “If you don’t do that, then you just put all your eggs in one basket.”

Geisleman echoed that point, saying all companies must consider backup sources for all their materials.

“You have to get secondary sourcing for everything, especially when it comes to packaging, especially if you have something really specialized,” she said.

“Make sure you’re not dependent on just one company, one country, one product. Make sure you protect yourself and insulate yourself, because who the hell knows?

“The last two years have been a wild adventure.”

John Schroyer can be reached at john.schroyer@mjbizdaily.com.