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Supply and Demand at the Speed of Cannabis

Once conspicuously low-tech to avoid scrutiny, today’s cannabis industry requires a high-tech approach.

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Mergers and acquisitions (M&As) are defining the moment in legal cannabis — but bringing a new company into the house doesn’t always mean instant success. As cannabis companies continue to merge and grow, it’s become increasingly important to manage the supply chain.

As the co-founder of a SaaS platform for the cannabis supply chain, I use one phrase ad nauseam: the speed of cannabis. Expected to reach $45 billion in revenue by 2025, cannabis is running full speed ahead toward mainstream acceptance, normalization and maturity; and its pace is as dizzying as its M&A activity. According to a December 2021 story by MJBiz Daily, New York’s Viridian Capital Advisors counted 306 M&A transactions with 209 of them occurring in the U.S. from mid-December 2020 to mid-December 2021. This was a three-fold increase valued at $10 billion that exceeded 2019 and 2020 valuations combined.

This rapid-fire M&A activity is the natural outcome of an industry that limits companies’ growth to the states in which they’re licensed to operate. Regulated on a state-by-state basis, this fragmented nature of cannabis licensing means that M&A activity would be an efficient engine for cannabis companies interested in growing a national footprint ahead of potential federal legalization. And yet, successful M&A cohesion in cannabis can be rare.

Fast M&A and Slow Integration

In my experience, one of the best predictors of M&A success is typically the length of integration, and in cannabis, this process can average a lengthy period of time. Homogenizing previously independent and disparate supply chain operations is one of the main post-merger obstacles cannabis MSOs might face; and with the tightening of capital markets, it is now arguably the most critical.

MSOs can no longer afford to underestimate the costly and lengthy challenges that come with manual supply chain data aggregation and the combining of disjointed accounting systems and processes. According to findings from The Hackett Group, integrated accounting automation can result in a 17 percent reduction in operational costs and digitizing procurement processes can further reduce operational costs by 45 percent.

In the cannabis industry, in particular, we’re seeing that supply and demand at the speed of cannabis require ensuring supply chain continuity.

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From Steam to Software

As the cannabis industry matures, the need to track supplies and shipping logistics, forecast global supply and demand overages and shortages, resist procurement duplication, standardize systems, increase buying power, and streamline operations consistently and transparently is cardinal. According to merger integration specialist Pritchett LP, communication is typically the worst-managed aspect of integration. Nowadays, in 21st-century business lingo, communication most often means digital technology.

Not immune to the current global supply chain crisis, cannabis has seen its most basic items, like the filter cones in pre-rolled joints, in tremendously short supply. Companies that have relied on sourcing raw materials and packaging from a single vendor are scrambling to find other vendors or even make the materials themselves while contending with supply chain issues. Brands whose childproof packaging sat on shipping containers for months have had to completely rebrand products and forgo previously planned marketing campaigns. Such supply chain disruptions can be devastating to individual cannabis businesses; when multiplied across the expansive footprint of an MSO in the midst of M&A integration, such disruptions could mean the beginning of an MSO extinction event.

Ensuring proper transparency and speed in the cannabis supply chain is key to moving our M&A-driven industry forward. Just as the steam engine changed the nature of trade in the U.S., and just as Amazon revolutionized global retail, so too could cannabis industry software and M&A activity forever alter the cannabis supply chain in this country and beyond.

Technology at the Speed of Cannabis

Once conspicuously low-tech to avoid scrutiny, today’s cannabis industry requires the adoption of a high-tech approach.

Moving at the speed of cannabis means that MSOs need better and faster ways to source materials as well as track the money sloshing around as they merge and acquire in order to survive for tomorrow. To plan for the future, MSOs need to promote greater holistic transparency, easy and time-saving integration of disparate data and accounting systems, and increased local and global marketplace collaboration. Those that don’t embrace an approach fueled by innovation and technology may as well be doing business with just a pen and paper.

Compliant cannabis is an economic driver, a job creator and has the potential to impact Americans in multiple different positive ways. Our industry also has a unique opportunity to redefine how industries purchase and how they supply, leveraging competitive pricing while maintaining their purchasing power. That’s occurring through M&A, but like every other 21st-century industry, the success could come from technology and communication. It has to — because everything else about cannabis is unlike any industry we’ve ever experienced.

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