With Nevada recently launching their highly anticipated recreational cannabis market in July, states are watching very closely at what they can learn from their neighbors and how to avoid key obstacles they’ve seen in getting these highly complex programs up and running.
One of the big issues we’ve observed is the nationally covered “cannabis shortage” that Nevada experienced in its very first week of recreational sales. When transitioning a state’s cannabis program from medical to recreational, it’s impossible to truly judge what level of supply will be needed to satisfy demand. You have the benefit of examining the existing medical program numbers, but that’s limited to patients with qualifying conditions and those who are comfortable having their name on a medical cannabis patient registry, ultimately limiting the number of users a state may see.
Nevada is a unique case in that it’s one of the largest tourist destinations in the world and with dispensaries located directly on the Las Vegas strip, it’s not a surprise that it attracted such a large number of customers in the opening week. However, regardless of the unusually large amounts of tourism, Nevada is not the first state to experience a shortage upon their initial launch, and it’s unlikely they’ll be the last.
When Colorado became the first U.S. state to legalize recreational marijuana adult-use cannabis in 2014, they had a fairly substantial medical cannabis program already in operation just as Nevada did, which many predicted would provide sufficient groundwork to handle the switch to recreational.
Businesses spent weeks prepping their shelves for the huge influx of customers. Even with sufficient supply in the cultivation facilities, individual dispensaries were running out of product on a daily basis. Granted, with such an established market, most locations were able to replenish their supply overnight or within a day or two, but that didn’t stop them from running out day-to-day and literally turning away customers due to lack of inventory.
Nevada hit a shortage quickly due to a lack of distributor licenses; the state only allowed distributor licenses to be held by alcohol wholesalers, none of which were licensed for production or manufacturing of cannabis in time for the roll out. The result was a shortage where dispensaries were unable to distribute product to one another because they were unable to obtain distribution licenses. This spurred a statement of emergency by the Nevada Governor to prevent customers from returning to the black market. In doing so, a change was approved unanimously to allow distributor licenses beyond alcohol wholesalers. This resolved the shortage quickly and effectively.
As California prepares the launch of recreational cannabis for January 1, 2018, they’re taking steps to ensure a shortage is not a problem. California’s “Pot Czar”, Lori Ajax, is pushing for consideration of temporary, four-month licenses to support some businesses, like cultivation facilities, during the process of being screened and awaiting their full time license, in order to avoid a break in the supply chain.
In theory, these temporary licenses should help alleviate the issue. But just like other states, we have no way to truly predict the scale of recreational cannabis business in California. Considering the already-significant cannabis market California’s medical industry has built over the years, it’s possible they have the infrastructure in place to prevent a shortage, no matter what the sales numbers look like on January 1.
On the other hand, opening day recreational sales in almost every state thus far has greatly exceeded any predictions.
So how big is California’s industry going to be?
To put this in perspective, the U.S. cannabis industry has no more than 10,000 licensed businesses nationwide; California is expecting to award as many as 20,000 licenses, effectively doubling the current national numbers with a single state. With a supply that will more than double the U.S. cannabis markets nationally combined supply, it’s evident that the state is expecting a significant amount of demand as well.
The question we have to ask ourselves is: Can the supply of the world’s largest existing cannabis market satisfy the demand of over 40 million Californians? In my experience, I don’t think there’s ever enough supply to meet demand in the opening weeks, no matter how much inventory you have on hand. So my suggestion to any dispensary in California is to stock up on plenty of inventory, or at least as much as you’re legally allowed to have on premise, because come January 1, you’ll have no trouble getting rid of it.
