How The Cannabis Industry Can Streamline Procurement For More Profitable OperationsManaging, tracking and controlling expenses and spend in the cannabis industry is critical to ultimate success.
Cannabis has swiftly become one of the fastest growing markets of our lifetime. By some measures, the Cannabis Boom — or the Green Rush, as many are calling it — is said to be expanding faster than the Dot Com Boom. According to cannabis industry analysts ArcView and BDS Analytics, the worldwide legal cannabis market is expected to exceed $57 billion by 2027. In an industry expanding right out of the gate, cannabis companies are scrambling to obtain and sustain an edge on the growing competition. And there are bound to be some growing pains. Without advanced information technology, the ability to keep up with the pack and remain competitive will be all but impossible.
The cannabis industry has an enormous luxury that the internet industry didn’t have. That is that a multi-billion dollar market for cannabis existed prior to legalization. Whereas the task of internet and hardware companies was to convince us all that they could provide value in new and interesting ways that had not previously existed, the challenge for cannabis companies is simply to redirect as much of the cash flow as possible from the black market into working economies.
The sheer size of this opportunity has given investors and entrepreneurs a great deal of incentive to pour billions of dollars into building out cannabis conglomerations. Institutional investors, big tobacco, alcohol companies, and big pharma (each of which stands to lose market share by not getting into this race) are eyeballing the potentially massive U.S. market while wringing their hands in anticipation of the end of federal prohibition. It’s all but guaranteed there will be a vast influx of capital the moment the U.S. federal government gives the green light and puts regulatory duties in the hands of the states. And everything will change.
Interestingly, it was the illegal operations and experienced growers who had a head start in this industry. Somebody had to be producing those billions of dollars worth of product. And, as you can imagine, those — let’s go ahead and call them entrepreneurs — who are emerging from the shadows of the black market, while they had plenty of knowledge related to growing marijuana, most had little experience in the use or value of information technology and certainly no experience in regulatory compliance. As a result, many operations making the transition from illicit to legal were — and still are — running on spreadsheets, custom-cludged database applications, or even clipboards and Post-it notes.
As the marijuana industry transitions out of the black market and into the real world, incorporating the proper financial software is becoming paramount to maintaining a competitive advantage. In the early phases of the Green Rush, many operators skipped over implementing modern finance and procurement technology in favor of focusing their energies on building out production capacity. However, skipping technological innovations today can sacrifice much of tomorrow’s potential equity. While spreadsheets and databases might have been adequate to get a head start in the landgrab phase of the cannabis industry, legitimate operations coming out of the gate with advanced technology at their beck and call have quickly risen in the ranks.
Entrepreneurs who got involved before the product was made legal are often the black sheep in the business world. It takes a certain tolerance for risk and a blatant free-spirited nature to operate in an illicit market. However, as legalization spreads, entrepreneurs with experience above ground in the real world have been joining the race for market share and bringing with them their experience in the proper implementation and use of information technology to minimize costs and maximize profits.
The True Value of Procurement Systems
The cannabis industry is not unlike other consumer industries. There are producers, distributors, retailers, and ancillary services. And in each of those categories, there are giants as well as mom-and-pop operations. While massive conglomerates have the wherewithal, experience, and budget available to implement modern technology coming out of the gate, many smaller operations are busy just trying to keep their ball rolling. But, the mom-and-pops, if they are to survive in this extremely competitive and fast-evolving industry would be wise to lift their heads and invest time and money into SaaS. For a number of reasons.
Firstly, it’s going to be extremely difficult for smaller operators to compete with the sheer economies of scale of big cannabis corporations. Because of this obvious fact, they need every advantage they can get to survive in the coming years.
Secondly, exit strategies need to be considered. As every schoolchild knows, a great way to establish a brand in an exploding industry such as this is not to start from scratch, but to acquire smaller companies that have gotten a head start and done well in brand building and creating top-mind-awareness for their product lines.
All things being equal (such as revenue and profit) given a choice between acquiring a company that’s running on modern technology and a company that’s running on clipboards and spreadsheets, conglomerates are generally going to choose the prior. Because of this, toeing the cutting edge of information technology in order to gain extra leverage can mean the difference between remaining a mom-and-pop operation and watching your competition blow by you, or becoming the target of a multi-million dollar acquisition.
The bottom line is that although implementing modern information technology into an operation is not cheap — sometimes running into the hundreds of thousands of dollars — and assessment and implementation require critical human resources. However, the corresponding increase in owner equity can be many, many millions of dollars. To say that watching your feet rather than look up into the canopy can be a costly mistake in the cannabis industry would be an egregious understatement.
As the cannabis industry becomes more established and institutional investors pile in, they’ll be holding management accountable for the intelligent integration of information technology.
This does not just apply to growers. As the raw material becomes more and more of an agricultural commodity margins in that space will thin, and the larger profit margins will move downstream to value-adding operations such as processors, consumer brands, and retailers. The ability to produce high volume products will be secondary to the ability to maximize their value.
Flying by the seat of your pants comes with operational inefficiencies, an inability to leverage data to minimize inefficiencies, and could result in disastrous losses of data.
Moreover, In the cannabis industry, integrating proper information technology is not just about money and process. Appropriate technology is also vital for maintaining regulatory compliance. In one of the most heavily regulated industries in existence — even more so than pharmaceuticals, alcohol, and tobacco — one slip up can be potentially devastating resulting in disrupted operations, lost business, and expensive fines and legal fees, and could likely even signal the end of the road for some.
IT Provides Increased Operational Efficiencies and Opportunities for Cost Savings
In such a fast-evolving industry, nowhere in the chain of events leading to profitability is the implementation of information technology more critical than in the area of procurement.
To keep the ball rolling and to take advantage of opportunities for savings, a company needs to be nimble and able to act quickly. Whether it’s a farm hand noticing a dwindling supply of nutrients, or an extractor in need of chemicals, or a retailer trying to avoid customer churn by keeping popular items in stock, a slow-to-act purchasing system can mean the difference between flying and crawling and could make or break profitability.
Without the ability to collect and analyze data, it’s all but impossible to wring the most out of an operation of any kind. Moreover, the ability to quickly act on procurement is essential in all stages of that wringing process. Unfortunately, much of the technology used by cannabis operators today is rudimentary, unscalable and unsustainable.
Moreover, even the most cutting-edge, industry-tailored information technologies fall short of acting as purchasing and procurement tools. While seed-to-sale software systems may be useful for increasing productivity, tracking inventory, and maintaining regulatory compliance, none of the existing seed-to-sale systems fully incorporate a robust procurement system.
“To carry a business to the top of this highly competitive, multi-billion dollar industry, you need more than a spreadsheet solution... a business’ competitive position depends on these high-performance capabilities — processes, tools, knowledge, skills, and behaviours that rivals can’t match — and the ability to leverage them in pursuit of strategic paths. Having the right technology as part of its capabilities is essential for a company’s success.” — From PwC Canada's cannabis series, “Chapter 4 - Technology: The missing link.”
Implementing cutting edge procurement technology is not just about making life easier for employees and vendors. There are numerous financial benefits.
For one thing, having a strong procurement system can greatly streamline and speed up interdepartmental communications. For example, let’s imagine a grower is running low on nutrients. On one end of the spectrum, assuming the employee notices the need, without the right tool, the request for approval to make the purchase is often made via an email, text message, or post-it note on the manager’s computer monitor. If the employee doesn’t notice the need or the manager is not available for the handoff, production may suffer, and the purchase request may go unnoticed for some time.
On the other hand, an integrated procurement system allows the employee to be more accountable towards organizational budgets and then make purchase requests while empowering the one holding the purse strings to immediately address the request, say, via a mobile device like the solution offered by Procurify.
"As we were growing, we needed more process in place. You need to make sure that you are growing effectively and efficiently from a finance and controls perspective." - Kirsten Tompkins, VP Finance, Anandia Labs
These days the capacity to manage data is critical to maximizing efficiencies and profits. By having a real-time window into all phases of operations, patterns can emerge that would not otherwise be exploitable if an operation is running on spreadsheets or clipboards.
With access to data comes plentiful opportunities to apply intelligence, sharpen focus, adjust strategy, reduce costs and waste, and increase production capacity. It also greatly enhances the ability to transfer valuable knowledge among employees presenting opportunities for extreme innovation.
Having reliable information technology, and particularly a robust procurement system gives a cannabis company the agility and flexibility necessary to enable innovation, to develop new business models, to maintain a competitive edge in this fast-evolving industry, and, most importantly, to vastly increase owner equity.
About Aman Mann,
Aman Mann is the CEO & Cofounder of Procurify, a SaaS startup based in Vancouver, Canada that is helping organizations reinvent the way they track, manage and control spending.
Aman is passionate about disruptive technology, leadership, and organizational culture, and helping organizations cultivate a positive Spend Culture.