The cannabis market going into 2021 has never been stronger. The industry is expected to climb to $73.6 billion in the U.S. alone by 2026, and its economic impact may hit $130 billion by 2024. But the industry's boom can’t overshadow the many challenges for manufacturers, suppliers, and retailers.

Regulatory compliance and legal requirements have been a struggle for the cannabis industry since its inception. Less talked about - but equally important - challenges lie all along the supply chain, including how products are sourced, manufactured, distributed, and tracked for quality and transparency.

To address these and other hurdles in the industry, many companies are exploring the benefits of supply chain master data management. Here’s a closer look at some of the top supply chain management challenges in the cannabis industry and how master data management can help:

Understanding the Cannabis Supply Chain

As you may surmise, this industry is set to grow exponentially due to evolving legislation around the use of marijuana and more and more states adopting it for medical and recreational purposes. Approximately 38.4 million Americans today use cannabis for recreational purposes in the form of different products. It won't be long before a multi-billion dollar global market for marijuana is born. Nowadays, cannabis is available on the market as a range of products like cannabis edibles, cannabis oils, and cannabis medicinal extracts, and more products are said to emerge over time. 

If you are wondering how this thriving industry operates, drilling down into its supply chain can give you some knowledgeable insights. The cannabis supply chain can be broken down into five stages: cultivation, manufacturing, distribution, transportation, and retail. Below, we will take you through these stages and talk a little about what processes each stage entails.

Step 1. Cultivation

In this stage, the cannabis plant is grown and collected. It involves the extraction and processing of raw hemp leaves. Individuals interested in the cultivation phase work either on large farms or in the backyards of their houses. Owning a cannabis business is gradually becoming a profitable venture for many people as more and more states legalize growing and selling cannabis. This facilitates obtaining a license to grow and harvest the plant.

1. Germination

This is the process where the seeds of the cannabis plant start to sprout and roots emerge. This triggers the plant's growth, with seeds absorbing water and minerals through roots and beginning the biological processes.

2. Seeding

In this stage, two embryonic leaves emerge from the root, forcing their way through the seed shell to get sunlight. The plant requires specific humidity and light conditions during this phase as it is the most delicate stage in its lifecycle.

3. Vegetative

By this stage, the plant develops the requirement for more light and nutrition. The roots extend deeper into the ground for additional water and nutrients, and this helps flower buds to grow and bloom. This phase lasts 1-2 months indoors. When the plant's sex starts to show, it indicates the onset of the next stage.

4. Pre-flowering

This stage typically lasts 10-14 days, marked by the shift from the light cycle to a 12-hour darkness cycle. During this phase, the plant grows substantially, doubling in size. More branches and nodes emerge, and flowers (bracts or bracteoles) begin to grow where branches touch the stem.

5. Flowering

The full growth of flowers marks this phase, and it begins when the grower ensures a minimum of 10-12 hours of darkness for the plant daily. The period lasts 6-22 weeks, depending on the type of plant being grown. During this phase, the plant's sex is fully revealed, with male plants producing ball-shaped flowers. This is also when male and female plants are separated to prevent pollination.

6. Harvesting

Harvesting takes the approach that best suits the intended use of the plant. Hemp cultivated for fiber will need to be harvested before the flowering phase, and cannabis grown for smoking and cannabis products needs to be harvested when 5-15% of trichome color turns reddish or brown. 

Harvesting also entails the drying process, where the plant is dried over a period of 3-7 days in a dark place at a temperature of 65-70°F and humidity level of 50%. To preserve the quality of the obtained cannabis, the drying process must be completed immediately after harvesting.

Step 2. Manufacturing

This stage pertains to the creation of cannabis products for retail purposes. Many manufacturers craft different types of cannabis products, such as cannabis flowers broken down and packaged in jars, joints, cannabis-infused drinks, and edibles. Cannabis drinks and edibles are among the most widely produced and consumed cannabis products. 

Manufacturing involves several steps, such as extraction, which yield by-products like the wildly popular CBD oil. However, before cannabis products are released to the market, they undergo testing at state-accredited laboratories that check for potency, as well as pesticides and other contaminants. As federal laws do not support the sale of cannabis products, agencies like the Food and Drug Administration (FDA) and the U.S. Department of Agriculture (USDA) do not specify any federal quality standards for manufacturing cannabis.

1.  Extraction

In this phase, manufacturers derive natural by-products from the cannabis plant to collect desirable compounds and exclude unwanted substances like fats and chlorophyll. During this process, manufacturers are hyper-focused on extracting cannabinoids and terpenes from the plant, as they yield the final product's aroma, flavor, and effects. 

A number of methods exist for extracting cannabis, but two methods are widely used: Solvent-based extraction and non-solvent-based extraction. Let's understand these two methods below.

Solvent extraction methods: This is the extraction method used for deriving cannabis extracts like wax, cannabis oils, shatter, and Butane Hash Oil (BHO). These extracts are deemed suitable for vaporization, dabbing, and ingestion. This extraction method utilizes common solvents like alcohol, hydrocarbons, CO2, water, and ethanol.

Non-solvent extraction methods: This method is often referred to as 'mechanical extraction' and utilizes a chemical-free extraction approach that produces concentrates like kief, hash, or rosin.

Charas, a simple method for producing hash, is derived by hand-rubbing live cannabis flowers to remove the resin. Dry sifting or shaking is used to produce kief, which is done by grinding the plant material and passing it through a silk screen machine.

2. Light Manufacturing

There are many manufacturers who engage in the process of light manufacturing. This process includes packaging bulk flowers in jars, shaking and forming them into pre-rolls, and separating buds into smalls, tops, mids, and kiefs. Distributors can also engage in light manufacturing.

In California, a special Type-P license is used to authorize the packaging, repackaging, labeling, and relabeling of cannabis products.

3. Infusion

Cannabis infusion is the phase that entails adding distillate to baked goods, beverages, and other consumable items to create edibles. This process is gaining ground among manufacturers and is believed to have the potential to transform the cannabis industry in the coming years. Infusions are ideal for use in cooking and baking and are not made for direct consumption, unlike concentrates and extractions.

There is no superior method for extracting cannabis; different methods have their pros and cons. While non-solvent extractions are generally safer due to the absence of flammable solvents, solvent extractions prove instrumental in yielding cannabis with higher purity in most cases.

Step 3. Testing

Lab testing is crucial to run a cannabis business legally; it's the cornerstone of the cannabis industry. There are rules and regulations around its testing specified by every state, which helps ensure cannabis products are safe for consumption in permissible doses. A cannabis product cannot be distributed and sold unless it has been tested and approved in state-accredited labs.

Accredited laboratories utilize different methods, such as analytical chromatography, mass spectrometry, and nuclear magnetic resonance spectrometry, to test and approve cannabis products. These tests aim to evaluate these products for detecting any traces of contaminants, pesticides, mold, and mildew and ensure compliance with regulatory standards. State regulatory authorities draw up and hold lists of prohibited pesticides, and manufacturers must create products that are free from these pesticides. Only then can these products be distributed to dispensaries.

Additional testing for cannabinoid and terpene profiles is optional but important for accurate labeling. The testing occurs in two stages: initially, before selling the harvest, where batches are tagged and sent for lab analysis. Secondly, any products modified from the original flower must undergo testing.

Most states require a sample from the batch, such as an edible or concentrate, to represent the entire batch from the same harvest. The results are then linked to that specific batch in the state's seed-to-sale tracking software.

1. Quality Assurance

Before cannabis products are shipped to retailers, the crucial step of quality assurance is conducted. Distributors meticulously inspect the packaging to verify its correctness, ensuring that labeling aligns with the state's regulations and includes the necessary information on compliance. Labeling requirements may vary among states but typically encompass details such as chemical composition (THC, CBD levels), weight, serial numbers, and specific dates (cultivation, testing, expiration, etc.). 

This meticulous quality check guarantees that the products not only meet the necessary legal standards but also provide consumers with accurate and essential information about the cannabis they are purchasing.

2. Storage

Upon receiving cannabis products, distributors store them in designated facilities. During the testing phase, the storage area must function as a quarantine zone to prevent potential contamination. Once products successfully pass the required tests, they can be securely stored on shelves. 

Following a strong and secure protocol for storing cannabis products is essential. For certain edibles that require lower temperatures, distributors employ freezers to maintain their quality and integrity. This carefully controlled storage process not only ensures compliance with regulations but also guarantees that consumers receive products of the best quality with high standards of safety.

Step 4: Distribution

Distribution of marijuana/cannabis is perhaps the most crucial stage in the cannabis supply chain. Cannabis is mostly distributed by third-party individuals who face the most compliance-related issues. This is because they mainly test and package the products themselves. They act as external sales teams for the wholesaler, collecting money from retailers.

Manufacturing and distribution of cannabis are strictly regulated by quality and safety standards, and the licensing mandates vary from state to state. Hence, there are some associated challenges that distributors must navigate.

Common Challenges of Distribution

Distributing cannabis products has its own set of challenges. Growers, wholesalers, and retailers can deal with different obstacles based on location, as seed-to-sale flow varies by state. Some of these obstacles can be:

1) Perhaps the most challenging issue pertaining to the distribution of cannabis is its transportation. The federal government places restrictions on the size of vehicles allowed to carry cannabis. The U.S. Department of Transportation imposes these restrictions, and hence, these can create severe difficulties for cannabis cultivators and cannabis product manufacturers. As a result, cultivators and manufacturers often have to look for alternative means to transport cannabis - seeking help from smaller freight organizations. 

Although this may seem like an easy workaround, using smaller freight vehicles can compromise the safety and security of the products. State laws lay down strict security measures, which these smaller vehicles may not be able to deal with due to the lack of the required equipment and expertise. Such logistical hurdles can result in higher costs for distributors than usual and complicate the distribution process.

2) Limitation on the interstate transportation of cannabis is another issue. The federal laws that govern the distribution of cannabis prohibit transporting it from one state to another. This creates economic constraints that lead to financial losses for retailers based in each state. As retailers must comply with these laws, they are unable to form a nationwide network for the distribution of cannabis, which results in a shortage of its products. 

3) To add to the complex distribution situation discussed above, there are also state-level regulatory laws that manufacturers and distributors must comply with. These laws impose strict regulations on the intra-state transportation of cannabis and demand that distributors obtain licenses to distribute the products to consumers.

Step 5. Retail

Retailers take the end position in the cannabis supply chain. These retailers must possess a license to sell cannabis products to consumers. They purchase white-label finished cannabis products and sell them under their brand name to compete in the market. Most retailers prefer the white-labeling practice to growing, trimming, drying, and producing their own marijuana products. 

Three methods of selling cannabis and cannabis products exist: Selling through traditional stores, selling through online platforms and sellers to leverage the influence of social media, and selling through both offline and online dispensaries to offer a hybrid experience to consumers. Depending on the product type, every retailer must adhere to state legislation governing the sales of their products.

Common challenges within retail

As distributors face challenges while distributing cannabis and its products within and across state boundaries, retailers face their own share of challenges. These challenges mostly pertain to product sampling, product knowledge, and compliance-related concerns and issues.

1) As retailers can only purchase stock from vendors/suppliers in their own states, they must look for licensed vendors to sell these cannabis products. This is crucial to adhere to the required ethical compliance standards, so retailers must ensure licensing and lab testing of all products they bring to their storefronts. 

2) Being well-informed about the ill effects of cannabis in disproportionate amounts helps sensitize end consumers. As retailers, knowing these ill effects can ensure the sales of these products are made to the right individuals and prevent any missteps that can potentially result in legal consequences for them. Although the cannabis industry is heavily regulated, slip-ups can happen and have disastrous results for businesses. Therefore, product testing, compliance with industry standards, and awareness of the consequences of falling into the trap of illegal practices are extremely necessary.

What Are The Main Supply Chain Challenges?

The cannabis industry may be booming, but many states still act slowly in terms of accepting its use and legalizing it. Other factors like inadequate inventory management, raw material shortage, logistic issues, and prohibitive legislation around intra- and inter-state distribution create further issues and delays in the supply chain processes, which become pronounced when consumer demand shoots up.

Ever-increasing consumer demand in the cannabis industry and a slow legalization practice in several states can put pressure on existing cannabis product supplies and supplement shipping shortages and logistical delays. Shortage of raw materials like steel and petroleum-derived goods slows down the cannabis supply chain processes, as these are required for refining cannabis and packaging and shipping it.

1. Product Proliferation

It’s estimated that more than 34 million adults in the United States consume cannabis, with more than half of users consuming it at least once per week. This increase in interest has led to the development of a myriad of cannabis-infused products, from coffee to personal care items to edibles and more.

While this creates more opportunities to turn a profit for cannabis companies, it also raises the complexity of managing multiple product specs and handling requirements. Things like shelf life, labeling, packaging, distribution, and marketing must all be accounted for, not to mention finding ways to manage each product and variation without letting costs get out of control.  

The solution: Supply chain master data management software can monitor every product at the spec level, from seed to sale. Companies can also view the profitability of each product and differentiate between passing fads and value to the consumer.

2. Seed-to-Sale Traceability

More products increase the need for more suppliers, which could muddy the traceability waters. Seed-to-sale traceability is of the utmost importance to stay compliant and maintain consumer trust. Many companies are using seed-to-sale software to facilitate this, but these tools are purpose-built only for traceability. They do not offer support in other areas of the operations where management of data is necessary.

The solution: Using supply chain master data management takes the guesswork out of tracking every product’s journey. Gain confidence in where plants are sourced from and how they’re used in production to where they are stocked in dispensaries.

3.  State-Specific Distribution Regulations

Perhaps one of the biggest challenges is the many moving parts of cannabis legality between states. Legal distribution channels, licensing requirements, and storage processes vary by state (and even at the county level in some places), including how cannabis products are transported across state lines.

The solution: Using a system with a central source of truth to manage all of these finite details is paramount in the cannabis industry. Supply chain master data management tools create a single digital thread across all participants. You can use this foundation to satisfy regulatory requirements and ensure compliance in every state your product is sold or travels through.

Specright is a leading provider of supply chain master data management solutions that instills confidence throughout your supply chain. Download our ebook to learn more about Specright's role in improving the cannabis supply network.