NewTropic’s top sourcing specialists share inside knowledge on how they handle supply chain issues in China.
With the more extreme COVID business disruptions beginning to ease, cannabis operators are getting a better feel for the new normal. On top of the many challenges inherent in supply chain management, additional hurdles remain, such as intermittent shipping delays, increased inspection times, and extended turnaround times on vital personal protective equipment.
Regardless of the pandemic, not accounting for these supply chain risks can result in critical product issues such as packaging shortages or an inability to meet labeling or testing standards.
We spoke with Andrew Moy and Belinda Zhou, procurement specialists at NewTropic with expertise in sourcing cannabis materials from China, about the inherent challenges brands face as well as how their team has overcome supply chain disruptions due to COVID-19. Moy is NewTropic’s expert on process and operations, while Zhou streamlines communication internationally negotiating rates and shipping with Chinese factory owners.
China remains an important part of the cannabis supply chain, particularly for packaging.
Should You Source in China?
It has become extremely commonplace to source materials overseas in the cannabis industry, particularly from China. For products like packaging, vape hardware, and glass or ceramic, the cost savings are often significant. But what about the hurdles? After all, if it was easy, wouldn’t everyone be doing it?
According to Zhou, packaging is one of the most common cannabis components outsourced to China. “Packaging is an area where Chinese manufacturers have extensive expertise, regardless of the product type,” she says. “And the cost savings increase dramatically as the order size increases.” There can be challenges, however, related to culture and communication. “Understanding Chinese cultural norms is important,” says Zhou. “For example, cannabis still isn’t widely accepted in China, and many manufacturers don’t want anything to do with it.”
Mega-cities dotting China’s coastline like Shenzhen as seen above, supply much of the U.S. cannabis packaging needs.
If you went to a Chinese packaging manufacturer and showed them that the end product was cannabis, most would not touch it with a ten-foot pole. In China, drugs are demonized and cannabis is no exception.
- Belinda Zhou
Sourcing Agent at NewTropic
Fortunately, some Chinese enterprises believe in the opportunity, particularly with cannabis packaging. According to Zhou, a former Shanghai resident fluent in Mandarin, manufacturers that are interested tend to be extremely receptive to learning everything they can. In fact, she refers to herself as a “cannabis tutor” for one of their more astute China-based manufacturing managers.
Direct factory sourcing is another potential benefit to working with China, but it’s far from straightforward. “Most customers find their original suppliers by searching on Alibaba or Google,” says Moy. “But to get the best deals you want to go to the source and build a relationship directly with a factory.” Language skills become critical, with Mandarin the predominant language spoken on factory floors.
Sourcing from China also poses longer turn-around times with more variability. “There’s only so many do overs in prototyping a brand’s packaging,” says Moy. “Eventually those delays can represent a real risk of shutting down sales in the U.S..” Moy emphasized the significant risk when a company tries to cut corners, like not ordering a sample and evaluating it before purchasing a full shipment. “Companies who are in a hurry and under tight budgets sometimes rush to market and hope everything goes right, without checking all the boxes,” he says. “Then, if things go wrong, they go really wrong. That’s when U.S. managers can lose their jobs.”
“There’s this reduction in cost you see when you succeed in bypassing Alibaba, but the biggest total cost reduction comes from less steps to market, and ultimately less mistakes.”
- Andrew Moy
Strategic Sourcing Manager at NewTropic
Shipping Impacts from COVID
COVID has caused a series of additional delays and cost increases for companies relying on US-China trade routes, particularly for protective gear. Inspections can easily add a week of shipping time to be unpacked, inspected, and packed up again–before being released to the shipper.
For this reason, protective gear has become a new bottleneck for companies physically touching cannabis, for both hygienic and protective reasons. Without gear there’s no processing, and therefore no product.
“Expect shipping delays at both borders due to U.S. and Chinese scrutiny in inspecting any shipment containing protective gear like masks, gloves, and full body suits.”
- Andrew Moy
Increased screening on foreign products has caused significant delays during the COVID-19 pandemic.
This has also directly impacted air freight costs, as companies scramble to expedite shipping. “With COVID challenges, air freight has increased 5-10 times its normal rate,” says Moy. NewTropic typically relies on air shipping to meet faster turnaround times, but unfortunately the pandemic has driven up costs allowing only the most urgent shipments to be made by air.
Why use a cannabis supply chain specialist for sourcing in China?
When both sourcing specialists were asked: “why should a company hire a cannabis logistics specialist?” A list was quickly compiled, revealing six reasons why companies would want to invest. The most compelling–it appears, is:
There are a lot of complexities in the US-China supply chain; handled correctly, companies can see significant cost savings along with corresponding margin increases. But if you want to outsource to China you’ll want to weigh the inherent challenges, and also have (or find) the proper expertise.
After all, running a cannabis company is hard enough without having to worry about shipping delays, language barriers, or an unintended cultural faux pas.
When sourcing overseas, you might want to leave the heavy lifting to a cannabis sourcing specialist.
Belinda Zhou is a former Shanghai resident and Chinese sourcing specialist. She handles NewTropic’s factory negotiations and shipments directly from China.
Strategic Sourcing Manager
Andrew Moy is a Strategic Sourcing Manager at NewTropic with a background in international trade and venture capital management.