Cannabis legalization is still a long way off, but the industry is already anticipating a shortage. The main issue? Marijuana producers can’t keep up with demand for the plant and are relying on pre-rolls to meet their needs. With recreational cannabis usage set to skyrocket in Canada over the next few years, this trend could start taking shape now before going out of style entirely.
The “cbd stocks to watch” is a cannabis stock that has been on the rise. The company has seen an increase in sales and revenue, which can be attributed to the recent legalization of cannabis.
Beware, pre-roll aficionados. Due to supply chain concerns, there may be a scarcity, therefore now is a good time to learn to roll.
Beware, pre-roll and stuff-your-own cone fans: according to many paper and cone producers and supply chain managers, a worldwide cone scarcity is on the way.
According to Alen Nguyen, CEO of supply chain management platform MainStem, the bulk of the world’s cones are constructed by hand in “less than 10” facilities in Indonesia, regardless of whether firm ends up pasting their labels on them. With a few exceptions, the majority of the remainder is manufactured by hand in India.
At general, rolling papers are made in factories in Europe, India, and China, with the bulk of them coming from European countries such as Spain, France, the Czech Republic, and other continental nations.
Regardless matter where cones are manufactured, Nguyen emphasized that a critical part of the process—the actual construction—requires human labor. The rolling paper manufacturing process is “very automated,” and there are no creases in that part of the supply chain at the moment. Cones, on the other hand, need careful construction to avoid wrinkles, rips, or creases when the paper is rolled and bonded. It hasn’t been possible to automate the procedure yet.
Because we are in the COVID period, this implies that there have been plant closures and labor stoppages in Indonesia since the beginning of the outbreak. This has resulted in a manufacturing and order fulfillment backlog at a time when demand for cones is surging. Cones designed for weed filling have become the latest victim of the current supply chain crisis, because to a worldwide shipping backlog.
“This Dutch gentleman who created one of the first facilities in Indonesia developed cones approximately 20 to 30 years ago,” said Bryan Gerber, co-founder and CEO of Hemper, which also owns Hara Supply. Hara is “the world’s biggest pre-rolled cone maker,” according to Gerber. He stated that over time, someone from the initial plant broke away and founded another, and so on, resulting in the vast number of cone-making enterprises that presently exist throughout Indonesia.
Indonesia is one of the key centers producing cones, according to Gerber and everyone else contacted for this piece, since labor is cheaper there. However, in recent years, strong unionization legislation and prior work stoppages have prompted cone producers to go abroad.
In India, where Hara manufactures its cones, labor is similarly cheap; according to Gerber, Hara’s production accounts for around 20% of the world’s cone supply. India also has the advantage of “essentially being open, COVID-wise,” according to Gerber.
While his firm is not facing a backlog in production like companies who depend on Indonesian labor, he and the rest of the globe are dealing with shipping delays. Technically, Gerber said, they could manage overflow for cone suppliers interested in switching to Indian assembly, but they’d all be stymied by the same shipping issues that the rest of the globe is dealing with.
Cone demand is at an all-time high.
For an already stressed market, the scarcity comes at a particularly inconvenient moment. “The need for cones is limitless,” said Gerber. “It’s literally endless.” Hara is now manufacturing 60 million cones every month, with the goal of increasing to 100 million cones per month by January, according to Gerber. He based this on market demand, which he and Nguyen both agree is highly influenced by multi-state operators.
According to Nguyen, the average order size at MainStem increased 51 percent from 2019 to 2020. The average order size increased by 43% from 2020 to 2021, compared to the prior year. This implies that, since the epidemic began, the average customer order size for MainStem’s wholesale customers, who are enterprises that either fill pre-rolls or sell cones under their own brands, has increased by 116 percent.
This is supported by the market’s size. Pre-roll sales increased by 59 percent from $704 million to $1.12 billion between 2019 and 2020, according to a report conducted by Custom Cones USA and Headset, a cannabis industry analytics business. Pre-rolls accounted for 10% of total cannabis sales in 2020, up from 9.5 percent in 2019. Although full data for 2021 isn’t yet available, it’s reasonable to assume the industry is gradually rising. Even if there isn’t any further increase in 2021, what is presently there is significant.
“Overall, we’ve seen a two to three multiplier in manufacturing lead time in the previous several months, and at least a three to five multiplier in shipping time by sea owing to the port backlog,” Nguyen added. “This is from a manufacturer distributing to distributors in the United States, as well as bigger customers with whom we engage directly with manufacturers.” “As a consequence, product delivery might take anywhere from 13 to 18 weeks,” he said. He also said that everything is subject to change, which implies that delivery times may rise.
Several vendors, all of whom offer either pre-rolled joints, cones, or both, acknowledged that the difficulties with Indonesian cone manufacturing were causing delays and shortages in their own inventory.
“Over the past year, the paper and cone scarcity has been a big element in Blazy Susan’s rise. Many of the bigger companies have struggled to keep up with demand due to massive increases in port congestion and shipping charges,” said Will Breakell, CEO of Blazy Susan in Colorado.
Another reason noted by Breakell and Gerber was production difficulties for rolling sheets in China, where part of the paper manufacturing has relocated over time. Breakell said there had been “severe” power shortages throughout the nation, with some places only being able to generate two days a week or fewer.
Rising labor costs, according to Gerber, have pushed rolling paper businesses to seek farther afield. Over the previous several decades, certain Chinese sheets have tested positive for heavy metals on many occasions, scaring away producers.
The CEOs of Space Coyote, Fuzzies, Daily High Club Greenlane, and Snail all stated that the cone scarcity has caused inventory issues. According to Nguyen of MainStem, he has several multi-state operator clients who place large orders on a regular basis, and their supply will be impacted.
There won’t be a scarcity for every brand, but even those with more stable supply chains won’t be able to make up the gap with their own inventories. Overall, fewer cones will be available for purchase.
“Our team has heard that our rivals are having trouble acquiring paper and constructing cones, resulting in inventory shortages,” said Paul Marobella, president and chief marketing officer of Republic Brands. OCB, E-Z Wider, and Job are all owned by Republic. Republic controls its whole supply chain, including paper manufacture and booklet assembly, so there will be no shortages in its paper or cone brands, he noted.
Greenlane, which owns the rolling paper brand Vibes, is witnessing higher demand for paper goods, particularly cones, according to Nick Kovacevich, CEO of Greenlane. Vibes’ papers are created in France, he said, and he reminded them of this. “Keep in mind that this only applies to pre-rolled cones, not flat paper, which enables customers to create their own joints,” he said. “We can’t acquire enough cones,” says the company, “so we’re increasing manufacturing in two separate places to keep up with demand.”
Do you have no idea how to roll? There seems to have never been a finer moment to study.