How Operators Can Ease Cannabis Supply Chain Disruptions

Supply chain disruptions in Canada’s highly regulated cannabis industry is a source of concern without a solution for both cultivators and retailers. On Aug. 5, 2022, a third-party distribution center for the Ontario Cannabis Store (OCS) — the provincial cannabis wholesaler for Ontario — experienced a cyberattack that shut down product deliveries, causing a weeklong supply chain disruption throughout the province.¹ In British Columbia, retail dispensaries laid off workers and closed shops in late August after workers for the BC Liquor Distribution Branch — which supplies cannabis stores in the province — went on strike, upending cannabis retailer inventory.²

Although the BC government has since made changes to help micro-growers enter the supply chain, these licenses do not benefit retailers, who must still purchase cannabis from the provincial distributor.³

These supply disruptions left many cannabis cultivators and dispensaries with no way to move product, and little financial recourse unless they carried substantial cyber coverage or contingent business interruption policies.

Take steps to reduce effect of cannabis supply chain disruptions

Although cannabis cultivators and dispensary operators must continue to work within a mostly single-source distribution system, to lessen the impact of future provincial supply chain disruptions cannabis companies should:

• Conduct a supply chain resiliency audit. Take a look at vulnerabilities to determine how future cannabis supply chain disruptions will affect the business and what issues will be the costliest to address.
• Create a strategy to handle interruptions. For cultivators who may be impacted by fertilizer shortages or other supply delays, consider cooperative purchases of key materials and foster relationships with multiple suppliers. For retailers, outline how much product the dispensary can afford to have onsite without negatively impacting cash flow and develop a plan for safe storage that includes theft prevention, temperature controls and more.
• Diversify product lines. Wherever possible, identify alternatives to popular products in the event that one product line becomes unavailable. For companies with more than one retail location, identify inventory that could be re-allocated to different storefronts to keep product on the shelves.
• Revisit insurance coverage. With no alternative supply options, dispensaries may want to consider additional insurance policies to help protect profits against supply chain disruptions.
• Lobby for change. British Columbia recently introduced a cannabis retail license that will allow small cultivators to sell in stores located at their cultivation site. With changes in British Columbia slightly opening up the single-source cannabis supply chain, other provinces could follow or further broaden distribution streams.

Contact HUB’s cannabis insurance experts for more information on how the cannabis industry can mitigate risk and protect against business interruptions.

¹ Canadian Broadcasting Corporation “Pot shop owners worry they'll lose customers if halt on OCS deliveries stretches on,” August 9, 2022.
² CTV News “B.C. cannabis stores close, lay off staff as job action prevents pot deliveries,” August 26, 2022.
³ CTV News “B.C. cannabis stores grapple with delivery stoppage as BCLDB workers go on strike,” August 17, 2022.