Business

Covid-19 Sparks Weed Hoarding, As S.F., L.A. Deem Pot Essential

avatar Dan Mitchell / Mar 19, 2020

Since December, when the Covid-19 virus appeared in China, the main worry for the U.S. cannabis industry has been disruption to its supply chains for vape hardware and packaging. Supply chains were disrupted, for a while. Now that the outbreak has reached the U.S., the industry faces a problem on the demand side: People are hoarding weed. If the trend continues, availability might fall short in some areas, businesses say.

Retailers in legal states have reported big spikes in sales volume, and in average order size, as customers stock up. A central concern is whether cities and states will force cannabis businesses to close. And where tight clampdowns are in place, it’s often unclear whether cannabis retailers are exempt.

The situation in the San Francisco Bay Area is illustrative.

On Monday, the six main Bay Area counties issued “shelter in place” directives and ordered “non-essential” businesses to close. The question immediately became: is cannabis considered an essential business? If so, is it just MED, or does REC count as well?

Nobody knows for sure. As of Wednesday, officials were scrambling to clarify the situation, while pot retailers were making decisions blindly. San Francisco ultimately declared cannabis to be essential, while other counties were still wrestling with the question. (Los Angeles County also deemed cannabis retail “essential,” this week.)

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Retailers Challenged

Some shops are closing, others are not. Many that are continuing to do business are offering only delivery and/or pickup service. Some offer curbside delivery to customers in cars.

When the shelter-in-place order was announced on Monday, Airfield Supply, a large San Jose retailer, immediately shut down, though the order wouldn’t take effect until Tuesday morning. “We did that to give our staff the opportunity to make decisions” about things like whether to come to work, Chris Lane, Airfield’s chief marketing officer said.

When the shop re-opened Tuesday, it was under the assumption that cannabis would be considered “essential.” But the 5,000 square-foot store closed to customers and converted itself into a fulfillment center for the shop’s delivery and pickup service.

To avoid pileups of customers, Airfield began texting pickup customers, allowing them to time their visits and eliminate the long — and possibly dangerous — line at the door. It also reconfigured its Salesforce software to create a digital waiting list, allowing buyers already at the site to wait in their cars, away from other people, until their orders were ready.

Business boomed. Before Covid-19 struck, Airfield had been serving 1,500 customers a day. Starting last week, “We’ve been well over 2,000 customers for several days in a row,” Lane said. Delivery orders, which had been a tiny part of Airfield’s business, have quadrupled.

Customers are buying mostly the same stuff, “They’re just buying a lot more if it,” Lane said. “They’re stockpiling a little bit, preparing for the next three or four weeks.”

Steady Growth Since March 13

The situation is much the same for many northern California retailers, according to Elizabeth Ashford, spokeswoman for Eaze, an online delivery platform which operates in California and Oregon. Eaze facilitates online ordering and delivery for its retail partners, and runs its own delivery service in the East Bay.

This Monday’s order volume on Eaze’s platform was up 38%. Deliveries were also up 38%. First-time deliveries were up 51 %, and new customer signups were up 105%. “There has been steady growth since March 13,” Ashford said. That was about when it started to become clear that Covid-19 was going to cause major disruptions and trap most people in their homes. This week, that growth turned “rapid,” she said.

In a contrast with Airfield’s experience, the buying patterns at the Garden of Eden dispensary in the East Bay city of Hayward have shifted, according to CEO Shareef El-Sissi. “Volumes are unparalleled,” he said. But consumers are favoring “value products,” such as the shop’s 14-gram flower offerings, which are considerably cheaper on a per-gram basis than premium flower offerings.

Looming Product Shortage?

Airfield’s Lane said he’s in constant touch with his suppliers, and so far, all say they will have no problem filling orders for the foreseeable future. But El-Sissi thinks that could change quickly if demand continues at its current pace. “Cannabis is like the new toilet paper,” he said. “Pretty soon we’re going to see people running out of product.”

While all regulated cannabis is sourced in-state, the fact that so many businesses might shut down or be operating with fewer staffers means that it might start getting more difficult for them to keep up with the heavy demand.

That’s the case for the retailers themselves, as well. Many delivery Web sites have warnings posted on them telling customers that order processing and delivery might be slow. “It’s a big strain on a system that was already taxed,” El-Sissi said, referring to the troubles the cannabis business was facing even before the pandemic, especially in California.

Meanwhile, while the pandemic appears to have plateaued in China, it could still return, or spread to new areas. Nearly all of the hardware used to make vape pens, batteries, and cartridges comes from China. Only a few weeks ago, cannabis companies were reporting shortages due to the virus. Some companies were hit harder than others.

One company that says it hasn’t had much of a problem is Blinc Group, which makes vape products for branded vape distributors in the United States and Canada. Unlike some others, it has long relied on several different suppliers of raw materials including metals and plastics, as well as several different contract manufacturers, all based in China. If one source goes down, the New York-based company can rely on the others.

As for now, “our entire supply chain is up and running,” said Blinc CEO Arnaud Dumas de Rauly. Like the retailers, “our main concern is not supply, but demand.” Over the past week, “we’ve seen a huge surge in consumer demand, but we don’t even know how many retailers are going to be able to continue operating.” For the moment, he said, “we’re still taking orders.”

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Dan Mitchell
Business columnist