Thinking and Acting Strategically as the Legal Cannabis Industry Enters its Adolescence
It starts with having clarity about your exit strategy
By: John Garvey
Last July, shortly after Canada legalized cannabis, Canadian firm Aurora Cannabis (NYSE: ACB) acquired MedReleaf for CN$3.2 billion—or $2.3 billion U.S. A record-breaking cannabis industry acquisition, it signaled that the industry’s transition to adolescence. The number and value of acquisitions surged in 2018 and, barring catastrophe, the trend towards consolidation will continue well into the coming decade.
Five years from now, there will still be some boutique dispensaries, small-scale MIPs producers and growers in the cannabis industry staying profitable with a slow growth strategy. However, a large portion of cannabis retailers are looking at one of three exit strategies:
- Acquisition: Make sure your ducks in a row and position yourself for a profitable acquisition.
- IPO: Expand through acquisitions and position yourself for an eventual IPO.
- Growth without public financing: Shield your brand from acquisition without going public, relying on alternative corporate financial strategies for growth (private equity, M&A, employee stock ownership plans, etc.).
Too good to refuse
Having clarity about your exit strategy is a critical, often overlooked priority, regardless of how you currently feel about your business. Whatever the case, you might end up leaving a lot of money on the table if there are any ambiguities relating to your inventory, cash flows or compliance.
Many operators are at a point in their growth where they feel it might make sense to invest in enterprise-level software, including more advanced seed-to-sale tracking, labeling, CRM, time tracking and business intelligence capabilities. It’s a considerable investment, raising the question: At what point does it make sense to make that investment?
For those who have even begun toying with the idea, the probable answer is, “Yesterday.” It boils down to compliance, attractiveness (to investors), efficiency and quality of life.
We’ve previously written about the importance of compliance and integration between accounting, inventory tracking and other systems. While these are important to any heavily-regulated industry, we want to stress two things here:
I. Investors and prospective buyers want accessible, clear data
If you’re a cannabis touching business (a retailer, grower or processor), there’s a good chance you’ll get an offer on your license in the next three years that’s too good to refuse. Investing in ERP software that provides you better in-house access to data, generates reports and seamlessly tracks inventory in real time will put you in a strong negotiating position when that time comes. That data will inform your own valuation of your business and give you something to lean on when making counteroffers.
“99 percent compliance is not compliant.”
– John Torkelson, Senior Operations Manager at Point 7 Group
RCS has made cannabis industry specific customizations to NCR Counterpoint, our retail support solution for POS, CRM, inventory management and time tracking solution. Those customizations, including automated reports, low inventory alerts and security measures, improve your day-to-day operations and help position you for a profitable acquisition.
II. The right business management solutions deliver profits and peace of mind
Due to various regulatory constraints and stigma, cannabis operators have struggled to find satisfactory banking, point of sale and other business support solutions. While this is often discussed as a liability, it’s also a matter of being able to enjoy your business.
“I like manual data entry.” – Nobody, ever
Knowing you’re on solid ground and having your data where it belongs (instead of a courier bag stuffed full of receipts) just makes life better.
You’re not just investing in compliance, you’re investing in customer retention and a good night’s sleep.
Getting your baby off to college
The motivations that originally brought cannabis operators into this industry are probably as varied as Van Gogh’s color palette. For those who understood that some of the risks were overstated or misunderstood, it has been a great opportunity. Many in the industry have fared admirably in spite of the constant uncertainty.
Perhaps you were drawn to it because of a deep sense of purpose that comes with providing people a way to manage chronic illnesses, or providing a safer recreational alternative to alcohol.
Then there’s the excitement of being part of a new, dynamic industry. It continues to be a great conversation starter even as the industry has grown more accepted and conventional.
Whatever the case, the passion was there. That remains, but economic forces (including the entrance of big players in pharmaceuticals and consumer products) are pushing the cannabis industry inevitably towards consolidation. If you see your dispensary as your baby, you might liken it to a child ready to go off to college. Making sure your books are in order and that fewer details require your day-to-day attention is a good thing. It’s like making sure your kid knows how to do laundry and budget for groceries and entertainment before you send him or her off into the world.
Contact us for an assessment of your cannabis POS needs. You’re not just investing in compliance, you’re investing in customer retention and a good night’s sleep.