Supply and demand at the speed of cannabis

Marijuana is one of the oldest, most popular and widely consumed drugs in the world. Its long history as a prohibited substance has made it difficult to study due to its illegality but there are many fascinating/entertaining accounts of cannabis use throughout time.

The “average dispensary sales per day” is an interesting metric to look at. It’s a good way to tell how much demand there is for cannabis, and how many dispensaries are needed.

Supply and demand at the speed of cannabis

Supply-and-demand-at-the-speed-of-cannabis

 

To evade attention, the cannabis sector used to be blatantly low-tech, but now it demands a high-tech strategy.

The author’s opinions are his or her own and do not represent the views of Rolling Stone editors or publishers.

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 overlook the expensive and time-consuming problems of manually aggregating supply chain data and merging disparate accounting systems and procedures. According to The Hackett Group, integrated accounting automation may save 17 percent on operating expenses, while digitizing procurement procedures can save 45 percent.

We’re finding in the cannabis market that supply and demand at the pace of cannabis need supply chain continuity.

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From Software to Steam

The need to track supplies and shipping logistics, forecast global supply and demand overages and shortages, avoid procurement duplication, standardize systems, increase buying power, and streamline operations consistently and transparently will become increasingly important as the cannabis industry matures. Communication is often the worst-managed part of integration, according to merger integration expert Pritchett LP. In today’s corporate jargon, communication most typically refers to digital technologies.

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.

Cannabis Technology at Breakneck Speed

To evade attention, the cannabis sector used to be blatantly low-tech, but now it demands a high-tech strategy.

Moving at the speed of cannabis means MSOs need better and quicker methods to obtain products and monitor the money swirling about when they merge and acquire. MSOs must encourage higher overall transparency, simple and time-saving integration of different data and accounting systems, and improved local and worldwide marketplace cooperation in order to prepare for the future. Those who refuse to accept a method based on innovation and technology may as well conduct business with 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.

The “average dispensary income 2021” is the projected average annual income of a cannabis dispensary owner. The number is based on an analysis of the current and projected supply and demand for marijuana in the United States.

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