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Understanding Vertically Integrated Cannabis Business

By Seed And Beyond | Blogs |

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Vertical integration is a commonly used business-related term across a wide variety of industries. In this blog, we are going to discuss what vertical integration means for the cannabis industry. When a business is vertically integrated, it means that the business owns all stages of their supply chain (from cultivation to retail) – the business will grow their own cannabis, extract and process it, manufacture products and also sell through their own retail stores. Vertical integration in the cannabis space ensures that the end-to-end business operation runs like a well-oiled machine. One important aspect of vertically integrated businesses is the single point of control of every aspect of the business thereby enabling customers to receive higher quality and fresher products at lower costs.

A Vertically Integrated Cannabis Business

There are different stages in a Cannabis industry supply chain. The process starts at the cultivation facility, where the plant grows from seed to harvest. Once ready for harvest, it is cut so that the plants are prepared for the lab extraction facilities and quality control. At the extraction facility, the cannabis plant goes through the process of extraction to remove the cannabinoids for edible or concentrate production. If the plant remains in its flower form, it travels to the manufacturing facility where packagers accurately weigh out and label the cannabis. Once labeled in compliance with local state laws, the final product is ready for the retail (or pharma) shelves. In a vertically integrated business, the company owns all sectors of this process.

State Mandate on Vertical Integration

There are a set of rules and regulations mandated in each state for vertical integration of a Cannabis business. Not all states allow vertical integrated Cannabis businesses. Some states mandate businesses to have vertically integrated whereas the other states have a strict ban on vertical integration. One of the main reasons for states that mandate vertical integration is because it allows the state to oversee all the operations in an efficient and smooth manner and have control over the entire supply chain process. Additionally, it also helps the retail facilities from purchasing black market products, as the businesses are required to produce, manufacture and sell their own products. There are a few other states that have a ban on vertically integrated business.

There are also a few states that leave the choice up to the businesses for vertical integration. In these states, cannabis companies can weigh the following pros and cons of vertical integration to decide if the structure is right for their business goal.

Advantages of a Vertically Integrated Cannabis Business

  • Business owners with vertically integrated model have control over their every aspect of their production process from seed to sale. Since there are no third-party service providers, you can cut down on a lot of costs. This translates to producing more quality products at lesser cost which in turn helps you bring the overall operational cost down and is also lighter on the pocket for the consumers.
  • There is a lot of flexibility for businesses in this model. Also, a complete control of the production line ensures better accuracy and quality control. You can produce cannabis products that have a higher level of quality that consumers expect from a leading cannabis business.
  • By bringing cultivation, manufacturing, and retail together under one roof, your supply chain becomes more reliable than when these verticals run independently of one another. The retail and processing divisions are given access to high-quality raw materials and finished products, and the cultivation division doesn’t have to worry about finding someone to purchase the yields.
  • Increase in profitability because of lowering of overhead costs. Businesses can increase their cash flow and reinvest in the business.
  • You can use ERP software and data to analyze your retail data and make changes to your cultivation or production cycle to increase efficiency, produce highest quality products and increase sales. This can be done for any aspect of your business.
  • Operating a vertically integrated business streamlines decision-making, reduces overhead costs, and achieves higher levels of efficiency. Real-time monitoring and communication between each vertical helps improve every aspect of your business operation.

Disadvantages of a Vertically Integrated Cannabis Business

  • Businesses must raise a large sum of capital for vertically integration. This means that small business owners have greater difficulty entering the market in states that mandate vertical integration due to limited resources.
  • Business operating in multiple states face challenges when one state requires vertical integration and one bans the practice, and adjusting their business model based on the state regulation is a laborious and involves a lot of costs.
  • Specializing in every vertical, in the Cannabis industry, usually requires a lot of time and experience. If not done right, the business might end up being a jack of all trades and master of none.

Seed and Beyond Cannabis ERP for Vertically Integrated Business

Seed and Beyond Cannabis ERP software powered by SAP Business One has redefined the way Cannabis ERP software work. Seed and Beyond’s vertically integrated Cannabis ERP software solutions address almost every area of business: from cultivation, extraction/processing, manufacturing, distribution to retail and marketing, sales, and customer support to finance, accounting, human resources and project management.  Businesses can monitor their end-to-end supply chain within a single platform. Seed and Beyond is powered with modules for every vertical in the Cannabis industry – from seed to sale.

Cultivation

Track every individual plant through the different stages of cultivation and harvest, and maximize overall yield with our robust cultivation module. Optimize future yields and efficiencies and increase your profitability with ease.

Manufacturing/Processing

Manage end-to-end manufacturing processes and optimize resources with our manufacturing modules. Gain insights and streamline workflows at each stage of manufacturing from extraction and refinement to the end product.

Distribution

Manage inbound and outbound shipments, inventory levels, vendors, facilities and wholesale partners within a single interface. Track shipping and deliveries, and efficiently streamline the distribution of high quality Cannabis to consumers.

Retail

Monitor and manage your entire retail operations with Seed and Beyond’s Retail Module. Track real-time sales, control inventory, increase ROI, and simplify operations efficiently. Gain complete view of your customers and grow your Cannabis retail empire.

Delivery

Manage logistic challenges by integrating data and business intelligence using the Seed and Beyond delivery module. Streamline orders, scheduling, payments, delivery and invoicing within a single platform. Track your fleet and optimize delivery of Cannabis to consumers.

Reporting and Analytics

Analyse data points, track key performance indicators and make intelligent and strategic decision with our extensive seed-to-sale Cannabis reporting and analytics platform. Connect to data and generate accurate reports across all different processes and share your reports in different formats and configurations.

Quality Control

Facilitate quality control testing and ensure that the products meet the required expectations. Track internal, customer and supplier quality activities and provide methodologies and efficient workflows for quality management.

Finance Management

Get an overall view of all your financial transactions with Seed and Beyond Finance Modules. Manage financial operations with other processes and improve your cash flow.

Sales and Customer Management

Manage your sales and customer lifecycle effectively. Understand customer needs better and meet their needs with Seed and Beyond’s CRM capabilities. Increase Cannabis sales, attract customers and improve sales operations with ease using our Sales and Customer Management modules.

Compliance

Monitor, track and report every gram of Cannabis through your entire supply chain. Our system keeps track of changing regulatory needs and has modules to track and report necessary parameters adhering to cannabis regulations. Print Cannabis compliant labels customised to your business directly from the Seed and Beyond platform.

To know more about vertically integrated Cannabis business, get in touch with us.