Island hopping: A new cannabis wholesale route in Hawaii

October 16, 2023 · MJ Biz Daily

A handful of medical cannabis companies in Hawaii are selling and delivering wholesale flower and other marijuana products from one island to another, a first for the state and a rare sales route anywhere in the U.S.

Island hopping by plane, helicopter or boat is common for visitors and residents traversing the region, an archipelago in the Pacific Ocean that encompasses a land area totaling more than 6,000 miles.

And now the state’s medical marijuana industry is hopping aboard to expand product offerings to thousands of MMJ patients.

Industry operators are reluctant to share details about how they are transporting product from one island to the next, given potential legal issues, among other reasons.

Traveling from one island to another requires crossing federal waters. And marijuana remains illegal under federal law.

But Hawaii legislators recently gave their blessing.

In June, lawmakers approved legislation allowing state-licensed companies to sell wholesale marijuana to cannabis businesses, including those located on other islands. The regulations took effect in August.

The new inter-island cannabis commerce is being celebrated, at least in some industry circles, for setting a precedent.

In Hawaii’s fledgling medical cannabis market, it’s also a sign of an underlying issue – namely, product inventory shortages, which remain prevalent six years after MMJ sales began.

These shortfalls, a consequence of location and operating in one of the nation’s more limited-license markets ultimately led to the new regulations allowing state-licensed cannabis companies to sell wholesale flower and other products, including vape cartridges and pens, to marijuana retailers on other islands.

In response, companies such as Big Island Grown and a few other suppliers are taking the plunge.

New channels for commerce

Big Island Grown, which has a 35,000-square-foot indoor cultivation operation on Hawaii Island, completed the state’s first wholesale inter-island transaction on Sept. 1 with Green Aloha dispensary on Kauai.

Within nine days, Big Island Grown’s flower sold out at Green Aloha’s dispensaries in Kapaa and Koloa, helping the retailer boost gross revenue 40% month-over-month, Big Island Grown CEO Jaclyn Moore told MJBizDaily.

Green Aloha and several other state-licensed operators did not respond to MJBizDaily inquiries for this story.

As the state’s only licensed hydrocarbon extractor, Big Island Grown also demonstrated a patient need for gummies, live resin vape pens and other concentrates, gaining necessary approvals from the Hawaii State Department of Health to distribute them wholesale to retailers, according to Moore.

“We are able to demonstrate a need because they’re missing in some of these other markets on other islands,” she said.

“We’ve been able to help build out the availability of multiple product SKUs (stock-keeping units) in that category.”

Since inking inter-island agreements, Big Island Grown now supplies about a third of all weighted cannabis products in the market, according to Moore.

She declined to discuss specifics related to product transportation or logistics, citing the sensitive nature of the issue as well as worker safety.

Island-hopper planes and commercial flights are common forms of transportation in Hawaii, with trips less than an hour to its neighboring islands.

Private charter and commercial boats are also an option.

A similar story elsewhere

Some U.S. operators already have been transporting regulated cannabis by sea and air, though it’s rare.

In Alaska, Weed Dudes has hauled pounds of marijuana in commercial flights to its retail store in the hamlet of Sitka, on Baranof Island just off the southern coast.

In Washington state, at least three retailers are located in the San Juan Islands, including on San Juan Island and Orcas Island.

Other wholesale suppliers in Hawaii have won recent approval to perform island deliveries, but they face uncertainties related to possible enforcement given federal prohibition.

“Operators are assuming all of the risk,” Moore said.

Singular problems

Medical marijuana operators in Hawaii face a unique set of challenges beyond regulatory restrictions and an established illicit market.

None is more impactful to the bottom line than the high cost of doing business in a state where few homegrown industries exist beyond tourism and real estate.

Local companies in every industry also face high tariffs and logistical conundrums since most products entering the state must pass through its ports.

In addition, Hawaii’s medical marijuana market is restrictive – gummies, brownies and other edibles were allowed only last year.

The state’s MMJ industry is small, with only eight licensed retail operators on four of its eight main islands.

Partly because of Hawaii’s long-established illicit market and collectives, patient registrations have been flat for years, stunting revenue for license holders.

As a result, lawmakers have been reluctant to take any significant action to prop up the MMJ industry or legalize adult use.

Deadly Maui wildfires in the summer have also shifted island resources and priorities.

The tumult has left nearly all the state’s MMJ businesses unprofitable and/or in debt, industry sources told MJBizDaily.

Medical marijuana retailers in the state this year are projected to generate roughly $67.5 million in revenue, growing about 15% to $77.5 million by 2028, according to the 2023 MJBiz Factbook.

Despite the headwinds, cannabis wholesale and distribution across waterways could provide a blueprint in other markets, while providing greater accessibility for island patients.

State of MMJ market

Hawaii’s medical market has been sputtering since it launched in August 2017.

Only eight medical dispensaries are licensed in the state, scattered across four islands.

The regional breakdown of the state’s eight retail operators includes:

  • Three on Oahu.
  • Two on the Big lsland of Hawaii.
  • Two on Maui.
  • One on Kauai.

Through the end of July, approximately 33,000 patients were registered, a total that has remained relatively flat since at least January 2022, according to state data.

“The patient base and adoption of the program has been pretty low,” said Randy Gonce, who recently established the Honolulu-based consulting firm, Hawaii Cannabis Industry Solutions.

A former executive director of the Hawaii Cannabis Industry Association, he estimates the number of patients actively shopping at dispensaries is much lower – around 10,000.

Gonce said about a third of cardholders are registered simply for added protection against enforcement.

Another third utilize the card for personal grows or stack several cards together to create larger cultivation operations and, ultimately, their own distribution and retail networks outside the scope of regulatory oversight.

“They’re just operating completely outside of that space and able to undercut everybody else at the end of the day,” Gonce added.

Hawaii’s cannabis regulations, as in most other markets, can be a challenge for local license holders.

Despite the region’s rich soil and favorable growing conditions, cultivators are prohibited from growing marijuana outdoors.

Hawaii cannabis companies also are required annually to pay for and conduct a third-party forensic audit of their entire business, accounting for every bud and penny.

If something is amiss, an operator could face hefty fines and must correct the issue before license renewal.

“For a lot of these companies, with the type of audit required and the infrastructure they have, that’s a $200,000 expense every year,” Gonce said.

Is 2024 the year for legalization?

While adult-use legalization efforts have failed to gain ground the past few years in Hawaii’s more conservative House, industry insiders are optimistic legislation could pass in the 2024 session.

House Speaker Scott Saiki, a Democrat who derailed previous legalization efforts, has indicated he plans to work on a legalization and adult-use retail bill next summer.

House leaders have also told industry sources they’re willing to schedule a hearing.

Democratic Gov. Josh Green has signaled he would sign a legalization bill if it crossed his desk.

“There is movement in the right direction,” Gonce said. (Full Story)

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