Category Archives: Logistics

Supply Chain & Distribution in the Age of Legalized Marijuana


Now, some readers will feel this topic is inappropriate for Sourcing Innovation. However, regardless of your personal view on the subject, it is a valid one given the continuing legalization of Marijuana around the world, and, more importantly, the fact it has medical uses. If you are personally against it, you can avoid the industry. But a healthcare provider cannot, especially once a licensed medical doctor has prescribed the drug.


As a result, today we welcome a guest post from Brian Seipel a Procurement Consultant at Source One Management Services focused on helping corporations understand their spend profile and develop actionable strategies for cost reduction and supplier relationship management. Brian has a lot of real-world project experience in supply chain distribution, and brings some unique insight on the topic.

(Dear reader: I need you to know how hard it was to resist writing a pot-infused pun into my headline.)

There are a lot of headaches attached to supply chain and distribution, faced by distributors and their clients alike. I can list a few, not that I likely need to – most readers will be familiar with them:

  • Regulations are, bluntly, a pain in the ass. This one doesn’t need much of an explanation. From city to city, state to state, country to country, there are a lot of rules to follow, and a lot of frustration for anyone who doesn’t dot the right “I’s” or cross the right “T’s.” If compliance is key, then regulators must have some pretty heavy doors.
  • Supply chains are often pretty inflexible. Any hiccups along the way can be devastating and, while good planning can ease the pain, nothing is sure fire. Want an easy example? For those in the north, think back to the last bad winter you faced. Any seafaring shippers can point to the last hurricane that graced their shipping lanes. Probably enough said.
  • Costs are rising. Fuel for trucks and wages for their drivers have frequently been a concern. Adding some strategic creativity to your supply chain can help stretch dollars, but the rubber can’t meet the road without expensive fuel to get it there. And a driver, of course, to keep it there.
  • Forecasting can be tricky, and demand can outstrip supply. Predicting demand (and predicting the uncertainty in that prediction) are crucial to gaining efficiencies in your supply chain. It can also be very difficult, leaving many to base decisions on assumptions and gut checks. One known factor at play here is the fact that demand far outstrips supply. There’s a shortage of truck drivers out there, and that isn’t good for anyone trying to move shipments.

Again, I likely didn’t need to remind any of you of these and many other challenges your supply chain faces. One thing you blessedly don’t need to worry about, however, is committing a felony just for shipping product.

In the Age of Legalized Pot, Distribution will be … Tricky

Sorry to bury the lead, there. However, I think it was important to do so. Given all those issues above that we all face, at least we can keep in mind that “someone out there has it a lot worse.”

You think regulations on your end are bad? States can barely get their own minds made up about the legal status of Marijuana, and that’s not even considering the fact that the stuff is still illegal on a federal level, regardless of what the states decide. That brings the regulatory landscape to a whole new level. On that note, what do you think the legal ambiguity means to an already fragile supply chain? Distributors of marijuana face a level of uncertainty not seen elsewhere.

If America has a truck driver shortage, imagine adding felony charges, stiff fines, and jail time into the equations – you can’t fault the labor pool for being cautious to enter this new arena. And even if you solve these supply chain risks in the here and now, predicting the demand of a product that is legal today but potentially a crime again tomorrow would make the best soothsayer’s head spin.

Still, this is an emerging market that has caught everyone’s attention. As Procurement pros with an eye on industry news and trends, this growing industry is, at a minimum, an interesting one to keep an eye on. So let’s dig a little further.

Weed Distribution: A Brief Review

To take a closer look, let’s travel to California’s sunny coastlines. It’s weird to think of the marijuana growers and dispensaries dotting the golden state as mon-and-pop outfits. “Not my parents,” right? Still, the term applies. Most don’t have the resources nor inclination to own most of the vertical elements of marijuana industry. Many dispensaries are happy to leave the cultivation and processing of marijuana plants to growers and act simply as the retail operation. Many growers simply want to focus on producing a high quality product, and have little time for the retail side of it all.

On one hand, it makes a lot of sense for the two to meet in the middle, forming partnerships. On the other, however, it can be painful for an organization on one side to deal with a dozen small outfits on the other. Not to mention the fact that some of those small outfits may land on the weaker end of the business acumen continuum. Besides, neither end necessarily wants to deal with the tax and regulatory management or logistics of the industry.

Enter California’s Cannabis Distributor License. Organizations under this license take up this relationship, and work with growers and dispensers to not only manage the logistics of the industry, but also myriad steps along the way – before handling the actual shipments, these organizations may also take part in the processing and packaging of the products, performing required quality control measures, and deal with the regulatory hassles that come with the territory. Just as importantly, growers and dispensaries can get a range of products from a much smaller, more reputable source.

This is a win for all parties involved. So, what is the issue?

For one thing, the California supply chain is being disrupted by a – very relatable for the rest of us – greater demand for distribution than there is right now. Plenty of dispensaries stocked up on product early on to ward against disruption, but there simply aren’t enough operators being granted licenses to keep the pipeline full.

This shortage isn’t the only concern. Plenty of attention is paid to high tax rate on one side and a banking industry that refuses to get involved in an industry still illegal on a federal level on the other. Both factors are squeezing the industry from a financial perspective.

A Look towards the Future

You may be asking, “won’t all of this get better as more states legalize?” This may be true over a long term. However, the federal government isn’t budging so far, which means every state is an island in terms of marijuana distribution. It wouldn’t matter if two neighboring states were both weed-friendly. That adjacency won’t count for anything, as state borders fall under federal jurisdiction. Hell, don’t even think about getting near some state borders as a cannabis distributor – simply approaching a border crossing zone between countries could land you in hot water, even if the distribution of marijuana within that border state is legal.

So let’s look towards what that longer future could look like. The biggest “if” factor out there is regulatory. Either states get their own ducks in a row and the federal government follows suit… or they don’t.

If they do, the cannabis distribution market could be a huge industry (we already see it growing quickly, albeit not quickly enough, in California). Limit the number of hoops to jump through and clear the way for distribution from a legal standpoint, and watch an industry thrive. If they don’t, however, I can see a slide back into the black market, regardless of the legality on a per-state basis. The lack of regulation and taxation could be too much of a draw for some to ignore.

And that would be a shame – from a quality and safety standpoint for the consumer and a revenue standpoint for the state, there are a lot of reasons advocates across the industry and interested in its success.

Thanks, Brian.

The Road to Riches? The Rails, My Friend, the Rails.

Every day, SI is becoming more convinced that if you want your Supply Chain to be a success, you need to ride the rails. It used to be if you were shipping goods long-haul over land, you’d ship them by train. There was no long-haul trucking and air was just too expensive. But then the war ended, Dwight D. Eisenhower championed the National system of Interstate and Defense Highways, the Federal Aid Highway Act of 1956 came into effect, long-haul trucking became an option, buses became more popular than trains for many trips, the railroads started to struggle financially, and ground eventually overtook rail for most cargo in the US.

And today, people in North America associate trains with the Wild, Wild West despite the fact that rail is, by far, the most cost-efficient way to move cargo over ground for distances in excess of 500 miles. It’s also typically the best choice for intermodal ocean freight as the major rail networks will not only have their terminals in the ports, but SLAs (Service Level Agreements) to make sure cargo is quickly transferred from ship to rail-car. For example, agreements between the Port of Halifax and CN Rail gives you a double-stack rail-service direct link to Chicago in 71 hours, which is typically a 3-day drive when you factor in daily driver limits and border crossing.

Why is SI becoming more convinced that Rail is the Future? Three reasons:

  1. Fuel Efficiency
    Efficient trains can move a ton of freight nearly 450 miles on a single gallon of fuel. Find a truck that can do that!
  2. Predictability
    The railroads control the rails – and can schedule them to maximize capacity and prevent traffic jams that can delay trucks for hours or more. Plus, well maintained lines and trains that keep to schedules suffer significantly less accidents than traffic on the road.
  3. Adoption by the East
    While the young and immature west might have dumbly abandoned trains just like it abandoned trams (and replaced them with gas guzzling polluting busses), the East is investing Billions in new (high-speed) rail lines everywhere. Consider the amount being invested in the Kunming-Singapore Railway with Laos alone committing to invest 6.2 Billion on the 260-mile segment between Kunming and Vientiane straight through the mountainous region of Northern Laos. Think about that. The GDP of Laos is only 9.3 Billion! That’s a huge commitment for a country the size of Laos, even if the commitment connects China to Thailand and will capture a sizeable portion of the 4 Trillion worth of imports and exports that flow into and out of China. This 6.2 Billion dollar railway will require 196 km of blasting and will create 76 tunnels. To put this into perspective, combined they would form a tunnel long enough to connect Korea to Japan under the sea.

It’s time to ride those rails! All around the world!

One Hundred and Fourteen Years Ago

The United States took over, and began, construction of the Panama Canal. Then, a little over ten years later, it was completed and for the first time ships could travel between the mid-Atlantic and mid-Pacific from at least 10 days, and typically two to three weeks (depending on how fast the ship was and the weather) to less than a day, as it saves ships a 7,872 mile voyage.

It revolutionized ocean freight and although we now take it for granted, it was a historic achievement.

Just a To-The-Point Reminder of Why Shipping Costs So Much

Empty pallets, empty containers, empty loads.

It’s essentially the same reason (airport) taxis usually cost more than Ubers. Empty space one way (in the form of seats).

Think about it. If a truck is coming empty from a big city 300 miles away to your plant to carry product back, every week, that’s over 15,000 empty miles a year on that one truck. A truck which takes a driver (who needs to be paid by the hour), gas (which costs by the gallon), maintenance, and replacement parts on an accelerated schedule. That means that you’re paying twice what you would be paying if the truck wasn’t empty for the majority of that 300 miles.

And even if you sub your shipping out to a logistics company, if the logistics company isn’t working hard enough on your behalf, that’s why certain lanes could be too high. And that’s also why you shouldn’t let a supplier or a single carrier manage your shipping. All carriers are going to have long empty lanes. You need to make sure that you’re cargo is not on these. You need to be sure that the truck isn’t driving more than a few hours from it’s drop off to your pickup (or your drop-off to it’s next pickup) so that the carrier is able to give you the lowest cost possible on the lane.

That’s why the best companies do global lane analysis (using decision optimization) and award contracts to multiple carriers that minimize costs across all lanes (by directly or indirectly eliminating the empty lanes).

So if you want to lower costs in your supply chain, just like you would avoid the empty calories in your diet, avoid the empty loads on your lanes.

There is No Free Lunch, and There is No Free Shipping Either!

Even though shipping is not, or should not, be that complicated anymore, it’s still relatively human intensive (as even technology-driven shipping requires someone to scan the labels, read the response, and load the products into the right boxes and then into the right truck for delivery to the right recipient) and will always costly. Why?

  • Every form of transportation requires a vehicle

    and all vehicles have acquisition and maintenance costs

  • Every form of vehicle requires some form of power

    and all forms of power have a cost, even if they are based on some form of renewable resource (as windmills have to be maintained and biomass has to be grown) — so energy costs will never go to zero

  • Every vehicle requires an operator

    even if the operator is the programmer maintaining the system that controls the drone or the self-driving truck

And not all goods are simple consumer goods that can be put in a box on a truck and handed to you by an average FedEx delivery driver. Some are fragile and require extra packaging. Some need to stay cold or frozen. Some are hazardous materials. Sometimes shipping a single small item can cost thousands, especially when you add in the extra costs in packaging, handling, pick-up, and delivery.

In other words, shipping is expensive. And anyone giving you free shipping is including it in the price, probably at a padded mark-up. So don’t fret the shipping, fret the total cost of the purchase relative to the value received. Sometimes if you shop around you can get a better product at a lower overall price, shipping included.

This is especially true if you’re buying from online marketplaces, Amazon NOT excluded. (Going back to Amazon, as the doctor has noted before, by now consumers should have caught on to the fact that many of the less-reputable third party merchants that use Amazon Prime Shipping mark up their merchandise to cover the shipping costs. the doctor has seen $40 to $60 mark-up on small items that probably only cost $10 to ship with Amazon’s massive shipping discounts.)