By Chris Casacchia, Staff Writer
April 17, 2023 - Updated April 17, 2023
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The Clovr production facility in Kansas City has felt the impact of the flower shortage in Missouri. (Photo courtesy of Clovr)
It didn’t take long for Missouri’s newly established adult-use marijuana market to feel growing pains.
The Midwestern market, which launched recreational sales on Feb. 3, is off to a sizzling start and on pace to break $1 billion in sales in its first full year. But strong demand from medical marijuana patients as well as local and out-of-state consumers has far exceeded operators’ expectations and resulted in the kind of product shortages and higher wholesale prices experienced in other newly launched recreational markets.
In some areas of the state, particularly near the Kansas border, Missouri retailers are seeing foot traffic increase ninefold since expanding into recreational sales.
In southeastern Missouri, Illinois consumers are crossing the Mississippi River in droves for St. Louis cannabis that’s significantly cheaper than back home.
Even illicit marijuana feeding the market from neighboring Oklahoma hasn’t quelled demand in Missouri, leading to big spikes in wholesale flower prices and inventory shortages throughout the supply chain.
“There just isn’t enough bulk flower for the sort of demand that’s come into the market,” said Ben Burstein, strategy analyst at New York-based wholesale technology platform LeafLink. “It’s one of the only markets in the country that you can actually say that demand is exceeding supply.” It’s a stark contrast from other markets such as Massachusetts, Michigan and Oregon, where falling prices and a supply glut are challenging business viability.
Operators in Missouri are also avoiding overleveraging production and resources, a recipe that has led to a glut of product oversupply in markets such as California and Colorado. With dozens of retailers and manufacturers buying bulk flower from only 50 cultivators – and most of them producing at less than half-capacity – the price of wholesale flower has skyrocketed the past few months.
According to LeafLink – which tracks nearly all wholesale volume in Missouri through its online marketplace – the price of bulk flower has doubled to $3,000 per pound since the launch of adult-use sales.
Meanwhile, the number of product stock-keeping units (SKUs) has dropped by two-thirds during that time. Bulk-flower availability is down nearly 79%, according to LeafLink data. “It’s going to be a couple more months where you have these bulk shortages,” Burstein said. Product and inventory shortages have followed the launch of recreational sales in several markets over the years, including California, Illinois and Washington state.
Despite the early hiccups, Missouri adult-use and MMJ retailers generated $126.2 million in sales in March, up nearly 23% over February.
Total marijuana sales in the state are projected to hit $1.3 billion in the first year of recreational retail, according to the 2023 MJBiz Factbook.
Cultivation production less than half-capacity
The crux of the problem in Missouri is cultivation underproduction. Fifty of the state’s 67 licensed cultivators are operational, and growers are utilizing a little more than 15,000 square feet of canopy, half the allowance under Missouri law, according to state regulators.
“The square footage of flowering canopy space currently in use is 37% of the capacity of all 67 licensed cultivation facilities combined,” said Lisa Cox, spokesperson for the state’s Department of Health and Senior Services.
“Any product availability issues right now are due to the industry’s transition to adult use and not due to lack of cultivation capacity in Missouri.”
Lulls in expanding capacity stem partly from the circumstances of legalizing adult-use sales in November through a ballot measure. Operators, in most cases, waited for the results before adding capacity and now are playing catch-up.
A harvest typically takes three months to reach retail shelves.
Greenlight Dispensary, one of the state’s few vertically integrated retailers, is utilizing the vast majority of its cultivation product within its own retail network.
The company started construction on a grow adjacent to its Kansas City operation that’s expected to conclude in mid-July, according to CEO John Mueller.
BeLeaf Medical, a vertically integrated retailer based in Earth City, is awaiting approvals to expand its cultivation to about 50% capacity.
“We’re going to have that product come to market around late Q2,” CEO Jason Nelson said.
The flower shortage has led to a distillate shortage for manufacturers such as Clovr, the state’s largest producer with nearly 100% coverage across 196 stores in the market. Before recreational sales, the Kansas City-based company had three months of product inventory in its vault. After the launch, Clovr was operating at net zero inventory week-to-week, essentially keeping little or no material in stock.
“I probably missed out on about an additional 25% of sales,” said CEO Josh Mitchem, who’s beefed up staff, added a second shift and ordered specialty equipment to expand extraction capabilities.
“So that bottleneck will be resolved. I’m guessing that I’ll be able to start building some sort of back-stock inventory here within the next three weeks.”
The flower shortage has helped edibles brand Zen Cannabis attract new customers, but filling manufacturing positions has proved difficult at its facility outside Springfield. “The biggest challenge has been employment and having enough personnel to keep up with the demand and extra shifts,” founder Jeremy Zachary said. The company, which employs about 20 workers in two shifts, is prioritizing popular products such as gummies on its production line.
“We were able to stack some inventory or some raw materials because we knew there was a tidal wave coming,” Zachary said.
“We did as best we could. But I’d be lying to say that we didn’t have our own shortages.”
Retail product shortages vary across Missouri, but problems are more acute near the Kansas border, according to industry insiders.
“They’re still seeing nine times the amount of traffic they saw when it was medical,” Mitchem said.
“There are vertical groups that don’t even have enough flower for their own stores.”
A Greenlight outlet in the Kansas City area is drawing 80% of its visitors from Kansas, where marijuana remains illegal.
“It’s a big number, and a bunch of these border (retailers) are seeing similar situations,” Mueller said.
Missouri holds the rare distinction of bordering eight states, and only Illinois has recreational marijuana sales.
BeLeaf, which operates five Swade dispensaries in the St. Louis area, has been selling its Sinse Cannabis brand to retailers in western Missouri to satisfy demand. “That volatility is not being consistently experienced across all operators,” Nelson said.
Turning the corner
While inventory shortages have driven up wholesale prices, retail product prices have gone up only about 10%, according to sales data and operators.
“I just don’t see much more than that,” Mueller said.
Price consistency is partly a reflection of the state’s low retail tax rate of 6%, which will increase another 3% in dozens of jurisdictions later this year after voters overwhelmingly approved cannabis tax hikes in an April 4 ballot measure.
The jury is out on when inventory shortages will dissipate.
Manufacturers will start turning the corner at the end of the month, Clovr’s Mitchem predicts. “I think we’re still going to see some pain points through the beginning of summer,” Zen’s Zachary suggests.
And with April 20 only a few days away, the market will likely get another demand surge. “April will be a big tell month,” Nelson said.
“It’s a cannabis holiday obviously, and these big events can tax inventory levels.”