Having been in the cannabis industry for quite a while now as a Chief Technology Officer, I often think to myself, “why do we see so many cannabis companies failing?” To most people, it looks like the growth opportunities are limitless, and there should be room for every company to succeed. About 70% of cannabis businesses failures are due to an inability to embrace practices that are easily managed by technology solutions (inventory and security).
Several factors can cause a cannabis business to fail, but most are not unique to cannabis. Like all emerging industries, businesses can fail if they don’t take the time to learn from others’ failures. And, from my perspective, it seems the cannabis industry is more determined than most not to learn from others.
Failure #1: Not Embracing Technology from the Beginning
It is not uncommon for people to say, “Wow, I didn’t know that cannabis companies have IT people!” It seems cannabis is not perceived as an industry benefiting from technology, but clearly, that’s not possible. A new CPG company jumping into this fast-paced market without leveraging technology would surely fail.
Thinking about this, I believe the idea of cannabis industries not requiring technological support stems back to the grassroots of the industry and the traditional, albeit illicit, market. Historically, the thought was that ‘no one does what we do… we are unique, so we have to do it our own way’.
But is this really the case? I acknowledge that some facets of this industry are extraordinarily unique and specific to cannabis. Cannabis producers may have proprietary extraction methods for terpenes or use an amendment mixture that they believe will give them a competitive edge. But, are they actually running the rest of their business differently than any other perishable products companies?
I think most cannabis businesses benefit from the decades of experience from other industries, such as how to harvest, containerize, store, ship, inventory, sort, package, label, carton, distribute, sell, finance, or report. All those industries are now adopting the mantra ‘Technology First’ instead of ‘Technology Last,’ because combined with real-time data, technology always does these tasks better than humans… period.
Costs Vs. Benefits
I hear the same excuses all the time: “Technology costs too much,” or “Technology is expensive.” But is it? What is doing it ‘your way’ costing you? How much of your end cost is driven by the risks you accept? If technology costs $500k to implement, yet saves the company $2M in six months, is the $500k investment too expensive? As stated earlier, most cannabis companies do not currently employ highly technical people. In fact, I’ve found most organizations in cannabis are set up to limit technology as a solution. Sadly, it is leadership’s lack of understanding of technology costs vs. benefits and spending practices that are focused primarily on operational functions.
What can be done to change this? To improve the technological prowess of a company, it is important to realize there are necessary steps to prime the environment for technology to be successful in every organization. Most of this is centered around the organization’s decision-making process:
- Technology must have representation. Having a core ‘techie’ on staff who likes to game on his PC does not qualify. Taking technology seriously also means having resources dedicated to technology and how it fits into the organization. Some may partner with an outside agency for technical support, but based on the basic tenets of this article; we recommend dedicated IT resources. Technology must be treated with as much importance as HR, Operations, Manufacturing, Distribution, or any other facet of the business. You wouldn’t think of running HR or accounting across your organization without dedicated people; why not IT?
- Technology must have a seat at the decision-making table. Technology isn’t just helpful for decisions that have been already made. Often, technology is the solution, but technology has pre-requisites that must be met for it to be successful. Wrapping technology around a broken manual process only proliferates failure. Technology cannot be an afterthought.
- The decision-making process must be formal and managed. This doesn’t mean the decision process must be complicated, but it should be formal. In my experience, cannabis businesses think all decisions need to be quick decisions, but that is absolutely not true. Most decisions can, and should, be analyzed – which takes time. With very few exceptions, a decision requires time for a business case and financial analysis, and if you disagree, you may be avoiding an answer you won’t like. Immature organizations see technology as a sunk cost. Technology benefits, risk avoidance, and cost savings, and recovery can only be exposed in a formal process.
- Technology must have an allocated budget. Leadership can talk about what needs to be done with technology and integrate technology into projects in theory, but if funding is not allocated, funds are frequently used for non-technology needs, as there are always emergencies and budget under-allocations on the operational side. Technology cannot always be the well that runs dry because operations needed more money.
- Technology tasks and projects must be formal and managed. The reality is that ALL projects should be managed, but technology projects are particularly susceptible to influence by parallel decisions. Because technology projects are so deeply ingrained in every facet of the business, decisions on the operational side can drastically affect success. Many non-technical organizations misunderstand the timing of technology, believing technology is a quick and easy fix for everything. Technology is often complicated to implement, particularly when the business must keep moving. Some solutions can be quick and easy, but even seemingly simple solutions take proper planning, as diversion can only be exposed when formally managed.
- Walk before you run. No technology implementation is going to be successful if you still have broken core operational processes. Solving these issues with the help of technology is on the path to maturity, but technology will not solve broken processes alone. If there are broken processes within the organization, the first consideration should be using technology to document the processes and identify gaps. You must identify and fix the root of the problem before technology can improve your systems.
- Technology has to be part of your company strategy. If technology is not a critical part of achieving your strategies, it will never succeed in your business. The reality is that there is less and less that differentiates cannabis companies based on core products alone. The application of technology can set you apart from the rest in amazing ways. How do you achieve better quality and consistency? Through technology.
This may seem daunting, particularly in the beginning phases of your journey with technology, but it really doesn’t have to be. Major changes do not happen overnight. The key is to make constant positive progress. Most of these requirements simply start with the decision to prioritize technology and then implement it over time.
The Key to Success
A common key to success in business is: “say what you do and do what you say.” In other words, if you say technology is important, you don’t evaluate cannabis or hemp equipment purchases without ensuring technology integration requirements. Other requirements can be implemented with simple technology tools, and we will cover enabling decision-making, budget management, and project management with technology in future articles.
But the good news is that technology will always improve outcomes and reduce risks (and the cost associated with them) when implemented and used correctly.
In short, the reality of the situation is: the cannabis industry is no longer new. Most businesses that are still here are no longer startups. There are very mature organizations entering this space with mature operating systems that fully embrace technology in every aspect of their approach and strategy.
If you are currently in this industry and hope to compete with or succeed over these mature operators benefiting from early cannabis visionaries, you must mature as well. In fact, some suggest you must mature faster and with more commitment because you are not ‘already mature.’ I agree that the next frontier of cannabis growth will be driven by technology.