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Cannabis Industry Growth - A Time for Evaluation

One observation at this point in time, is that outside of the realm of technology, there is perhaps no more dynamic growth Industry than Cannabis. The growth of the Cannabis industry is not only tied to the legalization of recreational marijuana at the state level and the continuing expansion of the number of states participating in the legalization process but perhaps as importantly the continuing revelation of Cannabis as a medicinal resource. Is a next step industry globalization?

However, the growth of the industry has brought significant changes in the infrastructure of the industry from that of primarily an entrepreneurial environ, from grower to merchant, to now vertically integrated companies. These companies will continue to expand through both acquisitions and organic growth but the entrepreneurs will continue to realize successes as a result of their often demonstrated willingness to innovate.

The changing dynamic in terms of growth and structural components of the Cannabis industry will in the relatively near term begin to have a negative impact on margins and necessitate the need for process change, across the entire spectrum. As innovation has been a constant in the Cannabis industry, those who seize the moment and get out in front of the proverbial curve, will not only survive, but continue to prosper. Innovation, and as importantly process improvement, will once again become the cornerstone for success.

Those who focus on product differentiation and process improvement, be it in growing environs, reduction in energy cost, improved throughput processing, effective transportation or unique cost effective but differentiating packaging mediums will be ahead of the curve and negate to a great degree the impact of margin compression.

Our team recently noted at a Cannabis tradeshow in the Bay Area, that while we met dozens of exceptionally talented botanists, geneticists, chemists, and enthusiastic growers alike, all of them had a distinctly common denominator – due to the exceptionally high profit margins in the recreational and medical cannabis industry, that there had been no emphasis to mitigate and reduce their operating costs through automation and sourcing of competitive packaging materials. When pressed with these facts, every respondent agreed that this was in fact the case; however, as margins had already begun to compress, a sense of looming concern was evident. As with any industry that migrates from infancy to maturity, margins and profits will continue to be compressed.

Now is the time for everyone in the industry to take a long hard look at their operation and ask the hard questions:

• “Am I buying my packaging materials competitively?”
• “Am I buying the RIGHT materials?”
• “Is my operation as efficient as it could or should be?”

If you or your business can’t answer each of these question with a definitive yes, then they should be concerned about the longer term prospectus and whether or not they will be financially competitive enough to exist as the Cannabis industry continues to grow and mature.

The entrepreneurial spirit will prevail and the Cannabis Industry is certainly a beacon of opportunity at many levels.

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