By Amy Poinsett
In 2010, I co-founded MJ Freeway working inside Colorado’s first dispensaries and cultivation facilities to set up their processes and operating systems. Since then, the MJ Freeway team has supported the launch and growth of thousands of cannabis businesses across the U.S. and around the world. Relationships and seed-to-sale data have given us the unique position to see cannabis business growth first-hand and at a broad scale.
This year will be a watershed for the cannabis industry. Eight states will implement cannabis regulations that establish medical or recreational markets. The year of 2017 marks a turning point in the industry that won’t be matched again until there is a change in cannabis’ status at the Federal level. This is the most exciting time in the history of legal cannabis. 2017 will be characterized by four big cannabis industry trends.
Competition will impact businesses.
Competition is increasing across all verticals. States from New York to Florida to Colorado are increasing licensed businesses. Venture capitalists are investing in cannabis at greater rates, bringing more and more well-funded businesses to market. More choice in the market is driving higher expectations from consumers for product quality, availability of favored brands, and price shopping. To survive in a market with more competition, cannabis businesses must increase quality, be price sensitive, invest in marketing, and cultivate differentiators in product or service that drive loyalty. Implementing any of these strategies to combat competition is a cost. Finding smart, margin protecting methods to implement these strategies is critical. And even more critical, finding ways to cut costs – eliminating redundancy, streamlining processes, reducing waste, managing labor hours through technology solutions – will protect your margin percent and your bottom line.
An evolving cannabis business model.
Increased competition in the cannabis industry is a natural progression of maturing industries. The corresponding natural progression is the evolution of the cannabis business model. In the early industry, there was a strong, committed sense of activism and a few trailblazer businesses operating with little infrastructure and generating minimal profits. We saw a lot of passionate, first-time entrepreneurs opening single, small operations using simple tools and informal processes. One of the key indicators of the industry’s growth is the level of sophistication we’re starting to see in two types of business models: 1) boutique, niche retailers and producers and 2) multi-location, multi-state, and vertically integrated enterprise operations. We’ve seen more businesses evolving their go-to-market strategies, operational practices, and capital investments to enable growth to one of these business models. These business models are poised to succeed. Boutique businesses will command a very loyal customer base who will pay more for the perceived quality or uniqueness of the products or services offered. Enterprise businesses will use scale to compete heavily on price and build widely known brands.
Both business types are enabled through sophisticated technology. Tying together inventory, labor, customer records, and taxes for multiple locations and multiple verticals is a job for a technology system that connects all functions and departments of a business. This is not POS software or QuickBooks. This is an investment in large-scale technology. Boutique businesses must use technology that increases product quality, availability, and customer experience and combine that with targeted marketing technology to reach their niche customers. Evolving closer to one of these models, with the supporting technology and processes, will help cannabis businesses thrive in an increasingly competitive market and set them up to capitalize on future opportunities from market growth, both at the state level and when the federal landscape changes.
Big data has been a business buzzword in recent years. The growth of seed-to-sale tracking has given the cannabis industry the ability to harness big data in a unique and very powerful way. The number of companies offering cannabis data services has grown recently, including MJ Freeway’s new big data product harnessing data from $5 billion in sales transactions and hundreds of thousands of plants tracked. As we move into the future of the cannabis industry, business use of data along the entire cannabis supply chain will be crucial to the long-term health of cannabis operations.
Imagine a business that can evaluate and tweak cultivation methods based on yields and testing results, identify and market to consumer preferences and shopping patterns, measure product profitability, and manage labor and output – all using data. After compiling this internal information for a year or two, a company can become a powerhouse that moves through the industry with the knowledge and know how to implement competitive strategies. The process can be accelerated by purchasing aggregate industry data that gives predictive analytics and forecasts of consumer demands based on the combined data of thousands of cannabis businesses over several years.
The businesses that use data to forecast inventory, track wholesale orders, increase product yield and quality, better serve consumers and patients, manage sales, and overall, operate more efficiently, will catapult their competition in 2017.
New regulations will be created in all 28 legal states in 2017. Trends in regulation include seed-to-sale tracking, stricter testing standards, and opening of new market opportunities like cannabis consumption lounges. More regulation can feel like a burden for cannabis businesses, especially when it increases the cost of doing business.
The truth is we need regulation; our customers need it, and our industry won’t grow without it. Regulation helps drive positive perception of our industry, which has been victim to stigma and false information for almost 100 years. It’s time cannabis was widely valued for its medicinal, therapeutic, and wellness benefits. Regulations ensure product safety, protect consumers, expand markets, discourage federal intervention, and enable businesses that remain compliant to thrive. Government regulation can feel intrusive. But the key is to make sure regulations positively serve the entire community and are written with an understanding of the realities of cannabis operations. In 2017, we in the industry must continue to partner with government legislators and regulators to contribute cannabis business voices and to the conversation.
We’re standing at the edge of history and the beginning of a phase of great industry innovations, medicinal application discoveries, product and genome breakthroughs, and the emergence of the next billion dollar brands. As the industry grows and matures, we will bring a higher level of sophistication, expertise, and professionalism to our industry. I’m excited about what’s ahead for these 2017 Cannabis Industry Trends. The potential is limitless.