Cannabis Distribution: Where Are We Now and Where Are We Headed?

Third-party distribution is a huge part of the future of the industry

Ada Cahill
Oct 14, 2019 · 6 min read
At the heart of the California supply chain is distribution, which can be operated independently (third-party) or vertically integrated (self-distribution).

Many recognize California’s emergence as the largest, most vibrant cannabis market in the world, with spectacular growth and constant innovation in new brands and products. But this inventive backdrop is shadowed by some of the strictest compliance requirements in the U.S., and penalties for violations can be severe. Non-compliant sales can occur when a brand or manufacturer fails to meet the BCC’s packaging requirements, ensure products are tested in a licensed lab, or confirm product is delivered to a licensed dispensary.

At the heart of this complex regulatory framework is distribution. Before reaching consumers, cannabis products are passed through five unique businesses types: cultivators, manufacturers, lab testers, distributors, and retailers. Distributors are positioned uniquely in the center point of traffic for the cannabis supply chain and are therefore key gatekeepers, but also bridge-builders for the cannabis ecosystem, as a result of their network of relationships and real-time knowledge.

As California’s legal cannabis industry expands, the distribution network has evolved to meet market demands and keep pace with a shifting regulatory environment. With California neither requiring nor banning vertical integration, the cannabis supply chain landscape has fragmented between brands working with third party distributors and those opting for self-distribution.

The Rise of Third-Party Distributors

For brands, self distribution might initially seem attractive due to the visibility and control provided. These initial positives overshadow the substantial challenges and risks of self-delivery, including unviable unit economics, non-compliant paperwork, payment and tax collection issues, and order miscommunications leading to real-time manifest updates and/or unsuccessful deliveries.

For the same reasons that third-party logistics have grown dramatically across many industries, third party distributors in cannabis are optimally equipped to handle these challenges and perform deliveries most efficiently. The ability to layer deliveries with multiple orders, increase the number of deliveries per route, and establish consistent routes across California allows them to drive the cost of delivery much lower than a single brand could achieve.

More importantly, working with a distributor empowers brands to reduce their management overhead and, ultimately, their bottom line. The average California distributor has between 10 and 30 employees, all of whom are dedicated to ensuring that deliveries are completed on time and compliantly. Since brands typically pay distribution fees as a percentage of gross merchandise value, they benefit from a larger, more specialized workforce for a fraction of the cost. On average, brands who leverage a third-party distributor reduce their distribution costs by 15% per unit of product sold.

Third party distribution can offer significant cost advantages over self-distribution

With eyes on every facet of the market, distributors will play a key role in the implementation of California’s new track and trace system, METRC. METRC acts as a seed-to-sale compliance management solution by using a cloud-based reporting system to manage the entire supply chain. California began using METRC in January, but has yet to come fully online.

With METRC now a mandatory aspect of the cannabis supply chain, third-party distribution can aid in the facilitation of this complex software. Distribution providers will function as a failsafe to ensure that cannabis cultivators and manufacturers don’t run afoul of the state regulations. The state’s track and trace system is complicated and requires a meticulous approach to compliance.

“Working with third party distribution providers that supply logistics, transportation, and compliance support will increasingly be a method to strengthen compliance standards at a minimal cost,” states Tom McBrearty, Head of Compliance at Nabis.

Lastly, third party distributors can invest heavily in developing cannabis logistics software, tailored for the industry and the unique compliance requirements. By hiring a team of dedicated engineers and leveraging operational expertise, the pace of development increases dramatically and is specialized for cannabis distribution. Features around order tracking, inventory management, and accounting can provide the maximum level of transparency, previously a key reason brands might seek to operate sometimes inefficiently through self-distribution.

Distributors Specializing To Thrive

As the need for third party distributors rises for brands, the role that a distributor plays overarchingly within the cannabis space has also continued to develop. Distribution companies have taken different approaches to scaling their business. For Nabis, the central focus has been based around building a core operational infrastructure for delivery, storage, and fulfillment services combined with a technology platform to facilitate this at maximum efficiency.

With this type of framework in place, it is possible to foresee a potential future where distributors and brands are partnered nationally. With the current legal and regulatory structures forcing brands to recreate their supply chains on a state-by-state basis, independent distribution partners will leverage their operational proficiencies to help brands scale cost effectively, rapidly and in a compliant fashion.

About Nabis

Nabis is the largest third-party distributor in the state of California, distributing $70M worth of wholesale products a year to 99% of dispensaries across the state. The tech-driven company provides a lightning-fast distribution network for the fulfillment, storage, and sales of wholesale cannabis products for over 80 major brands including Canndescent, Henry’s Original, STIIIZY, Bloom, and THC Design to retailers across the state from small delivery businesses to major dispensary chains. The company’s mission is to empower the world to discover cannabis by providing choice, access, and innovation.


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