As the COVID-19 pandemic tightens its grip on the U.S. and other parts of the world, its impact on a multitude of industries continues to deepen. That also includes the cannabis industry, which has emerged as a role player in its own right on this grim stage of disruption and uncertainty (and hope).
Amidst state-level shutdowns, cannabis has been deemed an “essential” business in many legal markets. And even before the shutdown, the industry made headlines after reporting huge sales spikes due to so many people stocking up on cannabis before “sheltering in place.”
Nevada was one of the first states to shut down and distinguish cannabis as an essential business. That’s good news for cannabis patients and consumers. And it’s also brought on an industry-level crisis with operators struggling around pandemic-crippled supply chains, logistic bottlenecks, and significant revenue loss.
An Industry Crippled Overnight
Former Top Gun instructor and pilot Shane Terry is on the frontlines of all this. He is the founder and CEO of the Nevada-based cannabis company TapRoot.
Like so many others, Terry is doing his best to navigate the disruption and chaos and to help his team and his community get through this pandemic. What’s more, he strongly agrees that cannabis is indeed an essential product for many people during the COVID-19 crisis.
“For a lot of people looking for a natural way of coping, cannabis is the answer. And in some of those cases it’s not about medical versus adult use,” Terry says. “It’s about access for people who need it. Period. Save the political debate for later; right now we need healing and confidence so that as individuals we will have all the tools available to work through this.”
Before COVID-19 hit, Terry and his team at TapRoot were focused strictly on the extraction of cannabis concentrates and the manufacturing of brands and products – working on production and output around the clock. And then everything came to an abrupt halt.
“Like many other businesses around the nation, our brick and mortar stores were closed to the public, and distribution shifted to delivery-only. But our industry wasn’t ready to support it logistically, which means the supply chains dried up overnight. Companies that were doing a few hundred thousand dollars a day came screeching to a halt with zero revenue,” Terry says of the coronavirus’s impact on Nevada cannabis.
“The overall lack of logistical infrastructure and supply chain preparedness to handle such a sudden shift to delivery really crippled our industry overnight.”
Talking to a few different dispensary owners, Terry found that at best some were able to fill 15 to 20% of their average daily volume. Most of them were below 5% of their average order fulfillment volume.
“That has had a ripple effect up and down the supply chain, where all of a sudden the vertically integrated operators aren’t buying from stand-alone wholesalers because they are facing the same pressure to move their own product through restricted distribution channels.”
The State’s two licensed delivery companies also had to quickly pivot, Terry continues. “One of them was able to get more vehicles on the road, efficiently onboard dispensaries and can scale to serve the community needs. The other has stopped taking on new customers and are a couple days behind in getting cannabis out to consumers, so there’s a significant bottleneck.”
Managing a Cannabis Operation During Widespread Crisis
It’s not just TapRoot. A lot of companies are facing their own forms of crisis amidst pandemic shutdowns. When revenue suddenly goes dry, questions of how to meet payroll, rent, and manage other ongoing costs are very real and pressing.
When companies normally face this type of financial challenge, the first instinct is to go lean, to lay people off so the company survives. However, as Terry points out, COVID-19 is a different circumstance.
“For the first time in recent history this isn’t just about saving your company during an internal crisis. This is about looking at the community as a whole and recognizing we have a responsibility to everyone – to our communities, to our families, and to our workforce to be able to work through this in a way that places the best interests of humanity above our own individual needs,” Terry says.
“This is the very definition of corporate social responsibility. Simple considerations and options that we might have had before as managers and CEOs, such as, ‘Well, I know, if I lay people off, they’ll at least have options to go get work elsewhere,’ – that doesn’t exist here.”
Cannabis industry layoffs, he explains, are part of what is hindering the cannabis market. “That just sends ripples up and down the supply chain and has the risk of cracking our economy. For most companies it’s not intentional, everyone is just trying to figure out how to survive one more day.”
Executives and managers are no longer able to play by the traditional playbook, Terry adds. “You won’t find traditional solutions in Harvard Business Review or any of the strategy consulting newsletters or journals on how to deal with this type of crisis. We’re literally changing our game plan by the day, sometimes even by the hour with new information or changes in regulation,” Terry says.
Making matters worse is that cannabis businesses probably won’t be eligible for any of the federal stimulus or economic relief packages, such as the billions of dollars allocated to help struggling businesses in the recently signed CARES Act.
“Most cannabis companies aren’t counting on it. Yet we still have a responsibility to look beyond just our company’s survivability but also to our community and the economy as a whole,” Terry says.
At the same time, Terry intends to do right by his employees. When a family of four loses a primary income stream and has to go on unemployment, it only creates another crisis for that family to deal with. For Terry and TapRoot, this has been a huge part of the thinking over the past few weeks.
“I immediately moved from ‘How do we launch products, maximize profits, grow revenue, and grow our distribution channels,’ to ‘How do I keep our team together?’ So that’s what we’ve really focused on addressing. We’re trying to figure out how to not only keep our employees working when everyone is facing financial stress, but also how we can contribute to rebuilding the industry. Once you accept your reality, it’s easier to start seeing solutions.”
Cannabis Operators Pivoting, Collaborating, and Getting Creative
One of the most inspiring things Terry has seen in Nevada’s cannabis industry during COVID-19 is leaders and operators coming together in online chats and groups – putting aside competition for the sake of collaboration and serving the community.
“We created an online chat and we started inviting our competitors, distributors and vendors and saying, ‘If you want to help contribute to the survival of the Nevada market, then we all need to collaborate and figure out how to solve this. We can save the competition for down the road; this is a time where we need to come together as a team.’”
This kind of collaboration is nothing short of inspiring, and perhaps more important now than ever.
“There’s no shortage of unique challenges in the middle of this chaos. How do we help build logistical infrastructure and efficiency? How do we ensure compliance and consider the concerns of the regulators who were also disrupted from their normal means of oversight? How can we support each other through employee layoffs and taking care of the people who built the foundation of this industry by re-hiring amongst other companies that may have a need? It’s been pretty incredible to see people put their differences aside and come together in that sense,” Terry notes.
This mode of collaboration, he says, is the only way the State’s cannabis industry will pull through. Stepping back as a whole and asking each other: What does the industry need right now? What are the challenges and how do we solve them?
The sudden switch to delivery was a harsh example. Before COVID-19, a dispensary near the Las Vegas strip might see 1,000 to up to 3,000 customers a day. “Convert that to 1,000 deliveries a day from one dispensary, and you start thinking about the logistical infrastructure required to support all that, from just one dispensary,” Terry explains.
Essentially, TapRoot realized the only way they’d be able to start selling their own products again is if it helped create an efficient delivery ecosystem to re-open supply chains. “All of a sudden, we went from working on high-end extracts to essentially being a recruiting and staffing agency for drivers. We started putting the word out on social media, to our network and saying, ‘Look, if you’re a budtender and you just got laid off, you can hope that unemployment insurance will support you or you can come work with us and we will put you in vehicles.’”
The circumstances around the COVID-19 pandemic, however, mean that even the smartest solutions aren’t so simple.
“The challenge is that this isn’t just an economic crisis. This is first and foremost a health crisis, which means we need to balance our desire for economic recovery with our primary need to control this pandemic,” Terry explains.
“So the answer isn’t just to blindly flood the city with drivers; we need to take extra precautions to minimize exposure to the virus. Again, with no playbook to reference, we started processing guidance from the WHO, trying to learn about how the virus is transmitted, and how we can properly protect our employees and customers.”
The TapRoot team quickly implemented mitigation procedures and daily on-site medical screening before any employee was even allowed in the building. Then they wrote SOPs around all this and shared it open-source with the industry to hopefully inspire other businesses to take the same precautions.
While these protective measures are critical, they are one small step in collaboratively addressing the supply chain issues. To that end, TapRoot has begun to collaborate with a tech-based cannabis delivery company called Hytiva. “They came in with some brilliant engineers and they went out and their CEO personally purchased a fleet of over 45 vehicles that they’re converting to put on the road. They’re trying to help dispensaries implement technology to make distribution more efficient, and we’re trying to screen drivers, train them, and put drivers in the seats of those vehicles,” Terry says.
“All of a sudden, I found myself, in a matter of days, trying to read about Uber business models, distribution centers, and call centers, and figuring out how do we start a logistics company in the middle of all of this uncertainty, on essentially a 24-hour notice. And is that going be the next evolution of TapRoot? Do I have any personal desire to start a delivery company? Absolutely not, but that’s what the community needed so that’s the way we pivoted. We looked at the limited resources we had, what we had the ability to influence and how we could contribute in any way possible to open up the supply chains, and that shows the agility and the creativity of some of the companies that are trying to solve this. It’s pretty impressive to see.”
Using Cannabis Extraction Facilities to Make Hand Sanitizer
While trying to address the workforce and logistical challenges within the cannabis industry, TapRoot also looked to see how they could address the broader needs of the community while facing shortages in necessary supplies and equipment to slow the spread of the virus.
“We realized that being an extraction facility we had some key capabilities and ingredients necessary to make hand sanitizer. Within hours we had approval by the State to make a test batch, and I couldn’t be prouder of how our team pivoted to produce a formulation in compliance with WHO guidance,” Terry notes, explaining how the team has already prepared its first 55-gallon drum of sanitizer.
“And I don’t know how they found out, but the next day I got a dozen calls from distributors around the U.S., all saying ‘we can get you distribution into big-box retail, we can increase your margins, current markups are huge due to demand, etc.,’ and I was like – ‘Sorry guys, hate to ruin your business opportunity but we’re giving this away for free, and if you have the capability then get on board and play your part.’”
Although the hand sanitizer won’t have any fancy packaging or match TapRoot’s typical branding standards and may not even be trusted by hospitals since it’s coming from a repurposed cannabis lab, Terry points out that it still serves a community need.
“Since we’re not charging for this, it’s been difficult to secure raw materials and packaging to meet the demand given the fact that we already lost most of our cannabis product revenue,” Terry reveals.
“Thankfully just a few weeks ago we’d started working with an incredibly inspiring non-profit in Downtown Vegas called Caridad Charity, who helps homeless vets get back on their feet through a community gardening project along with a transitional shelter program. I reached out and they immediately helped provide a tax credit letter that we’ve been using to incentivize raw material suppliers and packaging companies to provide us with supplies necessary to make more sanitizer.”
TapRoot’s first batch of hand sanitizer will be given to the “local homeless vet community who are probably feeling pretty abandoned and exposed during this pandemic.”
This Is a Time Where Everybody Has to Step up
As a 17-year military veteran with exposure to combat and loss of life, Terry would have preferred to shield civilian citizens from the grim and grief-stricken reality of a full-blown pandemic. And yet his training and experience have prepared him for this moment, where stress levels are surging and the future for so many is filled with uncertainty. This period, he says, will require a lot of perseverance and healing.
It is a period that also requires courage, mindfulness, and leadership.
“This is a time where everybody’s got to step up. And I feel that from what I’ve seen in combat is when shit goes downhill, and things are at their worst, that’s where people’s real character shines through,” Terry notes.
“People are either going to step up and become heroes, or they’re going to turn their backs and run. And I’ve been proud to see everybody around me and our team being able to step up and show up every single day and say, ‘What can we do? Where can we help? I’m open to it. There’s no job too small.’
This is happening in a lot of other industries too, people getting flexible and pivoting, helping out in any way they can. Whether it’s private labs running more COVID-19 tests than they can handle through an endless bottleneck or companies now manufacturing ventilators or masks.
“It’s not always glamorous, but it’s what people are willing to show up and do to get us through this. There will be a time to figure out how to recover the business and make a profit later, but now we need to selflessly turn to each other, show compassion, show our best selves and look for opportunities to help with whatever resources you might have. It’s the only way I feel we’re going be able to heal and persevere as a community.”