Effectively managing your supply chain can dramatically improve the way you do business. With legalization of recreational cannabis an evolving situation with many current unknowns, how can we apply what we already know to a brand new sector?
To put it in simple terms, supply chain management involves the coordination of all your business’ activities related to giving your customers what they want, from pre-production to delivery of the final product.
During this process, the product—or parts of it—will change hands, from suppliers to manufacturers, to storage, to shipping, and eventually to delivery to your customers for consumption.
Ensure that all companies and partners comply with government regulations.
Arno Groll, director of operations at The Hydropothecary Corporation says that the cannabis industry is no different from other regulated businesses, such as food processing or pharmaceuticals. As such, there are dozens of considerations, and he gives an example: “The containers we use for our products must be child-resistant. We have to ensure that our suppliers are able to provide the proper certification that their containers meet Health Canada’s standards. In turn, we are able to provide the federal regulators with that certification.”
Setting up your Supply Chain
Cannabis has to meet standards for taste, aroma, pesticide use, and its mental and physical effects. This presents a challenging aspect of supply chains: the product should be up to the standards that you and your customers expect. This may involve a tour of the grow facilities involved, so you can be assured of the grower’s quality standards.
When setting up a supply chain management system, there are many varied areas that can be addressed to improve efficiency. These can include:
- Estimating the balance between supply and demand, and ordering accordingly
- Sourcing your product
- Storing and delivering your product
- Handling possible product returns
- Acting on feedback from your customers to improve your processes
Groll advises that you really do your homework, adding, “Distributors and retailers will have to ensure that their licensed producer (LP) is able to fulfill their requirements for not only quantity of products for their retail shelves, but quality as well.
“For example, here at Hydropothecary we are in the midst of a major expansion of our greenhouse and production facilities to ensure we are able to meet the anticipated demand in the recreational cannabis market. We are about to finish a 250,000 sq. ft. greenhouse and break ground on a million sq. ft. facility. That means by the end of this year, we will be able to produce 108,000 kg of quality cannabis products, making us one of the biggest producers in the world. It took a lot of planning and preparation. Retailers need to ask potential LPs the right questions to make sure they are doing everything necessary to meet market demand.”
Develop Communication Systems
Open and honest communication is a must, and having a multi-level working relationship is key to making your processes work and tackling the problems that will inevitably crop up. An ideal supply chain relationship means that both customers and suppliers are connected in a way that allows an easy exchange of information about your company’s strategic plan and your demands. It can mean linking information systems via the Internet to reduce costs and improve quality, and to understand each other’s capabilities.
Open and honest communication is a must.
An arm’s length relationship with other elements in your supply chain may achieve your goals in the short term, but will not do much to build a foundation for a long-term business relationship. Regular dialogue is important, and this means that you may have to share information about new products, strategies, and even your customers’ information that is traditionally considered secret. The more your producers and other partners know, the better your chances to really get to the heart of any problems or issues that may arise and to devise an effective solution.
Differences from the Medical Marijuana Model
Groll states that under the medical cannabis system, licensed producers operate on a ‘business to consumer’ system, meaning that product is sold to clients through a website and shipped directly to them, but that will change after legalization. He adds, “We will continue to sell that way to some clients currently in the medical cannabis market, but we will also begin selling business to business, either by supplying provincial bodies responsible for cannabis distribution or private retail stores.
“In many respects, legalization will reduce the level of complexity when it comes to the supply chain. When selling medicinal cannabis to clients or patients, LPs must register the customers and verify the validity of their prescriptions. LPs must also track the amount of cannabis ordered by a client against the client’s authorized amount. This will obviously not be the case when selling cannabis products in the recreational market.”
Brendan Kennedy, Chief Executive Officer of Nanaimo-based Tilray, knows that there are many considerations in developing a supply chain. He says, “You should ensure that all companies and partners comply with government regulations with regards to cultivation, processing, and packing. Tilray is committed to working with government organizations by maintaining an open dialogue to ensure the needs of patients are considered at every level.”
Employing the right people also plays its part. Kennedy advises you hire qualified candidates and ensure they receive consistent education and on-the-job training so they are knowledgeable to serve your customers.
His final advice? Cultivate partnerships with organizations that share a similar vision to your own and make a real effort to understand the evolving landscape of cannabis in Canada, but don’t lose focus on the customer. He confides, “Understand your consumer and patient needs; where they are, what types of products they need, and how they want to access it.”
Photos courtesy of Tilray.