Has Cannabusiness Gone Cannabust?
It seems like only yesterday the cannabis industry was on its way to becoming a global success story. Widespread legalization and loosened regulations were followed by a flood of entrepreneurs and investors seeking to find their treasures in this modern-day gold rush. Consumers, too, were eager to finally gain easy access to the benefits of medicinal and recreational cannabis.
But as we’re seeing right this moment, it takes little more than a healthcare crisis, geopolitical tension, or overinflated expectations to derail an entire economy. When you have all three, and they’re focused on a single industry, it can be a disaster. The only way to survive is with deep and accurate operational insights and a tight control over your business. In other words, building a sound business foundation is the only way companies can weather such extremes.
Every economic bust drives companies out of business, but those that make it through are the ones who have the capabilities and insights to understand and plan for the downturn’s impact on their business. Just like the Webvans of the 90’s were crushed by murky paths to profitability and a contracting economy, modern stories like WeWork, Brandless, and Blue Apron tell cautionary tales of what happens when less than viable business practices are held up by an overly enthusiastic market.
A sound approach to business requires the ability to understand your costs, closely control your processes, and effectively connect sales and channel output to what’s required, and when, upstream to your suppliers. Gaining visibility into that entire continuum requires first tracking and managing each element. Anything left out means more guesses and more chances to make mistakes. Building all of that visibility on a single platform that extends from suppliers to customers makes the eventual rollups to the decision-makers and the C-suite that much easier and more accurate. It also makes it easier and faster when changes need to be made, such as adjusting to a rapidly changing market.
The cannabis industry has been poised for impressive growth since the 90’s. As California became the first state to legalize medical marijuana in 1996, it was followed, albeit slowly, by a trickle of regulatory easing and social acceptance. By the time Canada legalized cannabis in 2018, recreational cannabis was legal in more than 10 U.S. states, hemp legislation was on its way to becoming law, and the floodgates were open. The result? In January 2019, 15 cannabusinesses saw their stock prices increase more than 50%. A few saw their value jump by more than 80%. In just one month!
Those companies, some backed by global behemoths like Constellation Brands and Altria, were the new darlings of capitalism with seemingly unlimited resources from which to invest in farms, greenhouses, and facilities. But it wouldn’t last long. Throughout 2019, growth failed to live up to expectations and cannabis started being viewed as a commodity. Vaping deaths and injuries were in the news. As backlogged orders from curious customers were filled, sales slowed, inventories rose, prices dropped, and then it got worse.
In Canada, a government report from November 2019 showed that 5.8 million “packaged units” of cannabis were sold that month while 30.9 million units were in inventory – almost 6 months of supply. Exacerbating the problem in Canada was the slow pace of both federal and provincial government licensing approvals for cultivation and retail sales. Along with other issues, the result was staggering 2019 losses across the industry.
In the U.S., a combination of health scares, regulatory uncertainty, cannabusiness mismanagement, and investor pullback added to the effects of the global price and demand softness. Dealing with the tangle of laws, regulations, and testing requirements also added costs. The combination of issues was suffocating.
What can we learn from all this? Tight control over, and deep visibility into, production, operations, inventories, sales, and more are keys to success in any industry, especially one as volatile and changing as cannabis. Sure, the industry will eventually settle down and reach a state of predictability and common-sense growth. And, just as has happened dozens of times before, from tulip mania to the dot-com bubble to the subprime mortgage crisis, busts are usually followed by more reasonable thinking.
In the meantime, however, your cannabusiness might be on shaky ground. Getting a handle on your operations is the best way to spot weaknesses and opportunities, cut costs, and streamline processes. Having the agility to quickly respond to changing conditions is also critical in an industry that is in constant flux.
Cloud ERP is uniquely designed to help you build a world class operation or improve the one you already have. It can tie sales back to supply and production, so growers can accurately plan, and inventory levels stay manageable. It helps you track waste, understand the levers of quality, accurately track and fulfill testing requirements, and provide track and trace capabilities down to lot and serial numbers.
The cannabis industry will be, clearly, a substantial engine of economic growth. The challenge now is to survive the rough patches so you’re there to enjoy the eventual success on the other side. Cloud ERP can help you get there.
Visit our Cannabis Industry Page for more information on how Rootstock Cloud ERP can help your cannabusiness.
