Cannabis is always a unique field, and while it is possible to learn from more mature markets, it is important to adapt those lessons to its specifics.
Sir Isaac Newton once said: «If I have seen further, it is because I have stood on the shoulders of giants». This thought is especially relevant in the context of the cannabis industry, where we too often have to start from scratch. Federal prohibition prevents cannabis businesses from utilizing traditional tools like bank financing and technology, forcing us to forge our own path on our own.
Creating something new is always a challenge, as anyone working in this field knows all too well. We have made impressive progress, and the industry has expanded markedly in both size and complexity. Nevertheless, the challenges will continue to pile up.
Sir Isaac Newton once said: «If I have seen further, it is because I have stood on the shoulders of giants». This thought is especially relevant in the context of the cannabis industry, where we too often have to start from scratch. Federal prohibition prevents cannabis businesses from utilizing traditional tools like bank financing and technology, forcing us to forge our own path on our own.
Creating something new is always a challenge, as anyone working in this field knows all too well. We have made impressive progress, and the industry has expanded markedly in both size and complexity. Nevertheless, the challenges will continue to pile up.
Rather than facing painful experiences, we have the advantage of a second go — the ability to learn and adapt best practices from more serious sectors. This in turn improves operational efficiency, reduces losses, frees up capital and helps our industry grow. We see how important trust is in this sector — both between us and consumers and between industry participants — to ensure that people understand the benefits of a legal market.
Today, we will apply these insights to key best practices observed in other industries such as consumer packaged goods (CPG), wholesale retail, and grocery. By exploring these areas, we can learn important lessons that can be implemented and customized to the cannabis industry.
Supply Chain Optimization
I've worked with retail giants like Amazon and Walmart, and analyzed retail, wholesale, and manufacturing supply chains in the CPG, apparel, and grocery sectors as a consultant. These experiences have shown me how critical it is to optimize supply chains to improve operating margins and cash flow.
Today, we will apply these insights to key best practices observed in other industries such as consumer packaged goods (CPG), wholesale retail, and grocery. By exploring these areas, we can learn important lessons that can be implemented and customized to the cannabis industry.
Supply Chain Optimization
I've worked with retail giants like Amazon and Walmart, and analyzed retail, wholesale, and manufacturing supply chains in the CPG, apparel, and grocery sectors as a consultant. These experiences have shown me how critical it is to optimize supply chains to improve operating margins and cash flow.
The success of these companies depends heavily on their collaboration with supply chain partners, from wholesalers to transportation companies. Integrated planning, deep analytics and aligned incentive systems set CPG and retail leaders apart from the rest.
In fact, most large stores don't make payments for the goods on their shelves before they sell them. Instead, they use data to forecast demand, understand customer segmentation and optimize price. With the right tools and meaningful information, they create an environment where goods have time to sell before they need to be paid for, reducing working capital requirements and shelf life.
However, many cannabis retailers are unable to pay their suppliers' invoices because their working capital is frozen in inventory. This is rarely due to malicious intent; rather, this situation is due to the fact that the cannabis market is still in its formative stages and unpredictable.
The lack of appropriate business tools has led to a serious $3.8 billion delinquency problem in the industry, according to a recent report by Whitney Economics. This equates to more than one and a half months' worth of all retail cannabis sales in the United States.
This state of affairs prevents retailers from investing in and growing their businesses, threatening growers and processors with bankruptcy. LeafLink, the company I run, experienced this firsthand when retail partners began having trouble paying their invoices. When retailers can't meet their obligations to suppliers, it leads to distrust between operating partners, which in turn makes it more difficult to solve high-priority problems.
The lack of appropriate business tools has led to a serious $3.8 billion delinquency problem in the industry, according to a recent report by Whitney Economics. This equates to more than one and a half months' worth of all retail cannabis sales in the United States.
This state of affairs prevents retailers from investing in and growing their businesses, threatening growers and processors with bankruptcy. LeafLink, the company I run, experienced this firsthand when retail partners began having trouble paying their invoices. When retailers can't meet their obligations to suppliers, it leads to distrust between operating partners, which in turn makes it more difficult to solve high-priority problems.
Forecasting
Large consumer goods manufacturers and retailers have extensive data and actively collaborate with partners in the supply chain to fine-tune their forecasts. Importantly, they have large teams dedicated to developing, analyzing, refining and implementing these models.
Advanced forecasting tools are becoming an integral part of their business, as the cost of capital investment is often prohibitive for smaller operators. Therefore, entrepreneurs in the cannabis sector should look to technology providers who will create solutions that utilize the scale of the industry to justify the investment.
Large consumer goods manufacturers and retailers have extensive data and actively collaborate with partners in the supply chain to fine-tune their forecasts. Importantly, they have large teams dedicated to developing, analyzing, refining and implementing these models.
Advanced forecasting tools are becoming an integral part of their business, as the cost of capital investment is often prohibitive for smaller operators. Therefore, entrepreneurs in the cannabis sector should look to technology providers who will create solutions that utilize the scale of the industry to justify the investment.
Some companies have already recognized the need for customized cannabis tools based on experience in mature markets and have begun developing them. For example, CASA, which has a strategic partnership with LeafLink, offers solutions and professional services for retailers, providing real-time data to help them make purchasing and pricing decisions. These tools are similar to those that are widely used in other industries and have a proven track record of improving business performance.
It is important to use proven solutions that take into account the specific characteristics of the industry. Forecasting challenges (e.g. high SKU turnover, new brands and unstable supply chains) are the main factors affecting working capital and gross margins.
It is important to use proven solutions that take into account the specific characteristics of the industry. Forecasting challenges (e.g. high SKU turnover, new brands and unstable supply chains) are the main factors affecting working capital and gross margins.
To address these forecasting, incentives and working capital challenges, we have implemented the PoST (pay-as-you-sell) method. This method allows retailers and brands to collaborate on orders based on actual sales and set dynamic payment terms that take into account actual product sales.
Such a system helps free up funds for other investments and reduces the risks associated with testing new products. It also automates invoice processing, simplifying cash flow from the retailer to suppliers and eliminating the problems associated with late payments and distrust. For suppliers, this means more frequent and guaranteed payments, as well as a clearer understanding of where to focus cultivation and processing efforts to maximize efficiency.
Ultimately, such work results in a closer partnership between brands and retailers with aligned incentives, allowing them to jointly optimize product sales and meet consumer needs. Despite the rise of e-commerce, the essence of retail remains inherently local. Physical stores that take root in certain neighborhoods, serving the unique needs of the community, can thrive if the local community embraces them.
An effective strategy for winning local community support is to demonstrate to the community that you understand and embrace the local community, culture and people. This approach fosters loyalty, stimulates growth and can set retailers apart from the competition.
Localized Retail:
- Promotes community pride and loyalty
- Distinguishes stores from chains
- Supports the local economy
- Encourages preservation of cultural heritage
A great example of this is the recent grand opening of Alta Dispensary in New York City's Chinatown. Owner Vanessa Yee-Chan stated: «At Alta, our mission is to create a pharmacy where consumers and the community can feel more confident». At the grand opening of Alta, Vanessa paid homage to her own culture and local community by inviting lion dancers, local elected officials, food from local establishments and even donated all proceeds to local charity partner Send Chinatown Love, demonstrating a strong sense of connection and knowledge of the local community and people.
In Brooklyn, The Emerald Dispensary nearly faced disaster over a dispute over the need to paint over a beloved mural of local hero and hip-hop legend Biggie Smalls. The tribute, depicting a young Christopher Wallace, was painted by a local artist named Hutek, and it had been on the property's exterior wall for over 3 years before the dispensary took over.
In Brooklyn, The Emerald Dispensary nearly faced disaster over a dispute over the need to paint over a beloved mural of local hero and hip-hop legend Biggie Smalls. The tribute, depicting a young Christopher Wallace, was painted by a local artist named Hutek, and it had been on the property's exterior wall for over 3 years before the dispensary took over.
Owners Christina De Giovanni and Ramon Roman stated, «We have loved this mural since the minute we moved into this building and we have done artwork on the front of the building and along the wall, we all agreed that we would not touch this large mural. We love it. It's staying».
However, such a portrait on an exterior wall potentially violates cannabis advertising regulations in New York City, so the owners made the very difficult decision to paint over it, which prompted negative reactions from the community and calls for a boycott. Fortunately, and with incredible foresight, they used washable paint to cover the mural, and when OCM clarified that the mural could be left up, they were able to restore it.
Clearly, their innate understanding of the local community influenced their decision to take special care of the artwork so that it could be restored because they understood its importance to the community.
In today's competitive marketplace, going local isn't just a niche approach; it's an important component of success in retail. Here are a few ways to pay tribute to your local community:
However, such a portrait on an exterior wall potentially violates cannabis advertising regulations in New York City, so the owners made the very difficult decision to paint over it, which prompted negative reactions from the community and calls for a boycott. Fortunately, and with incredible foresight, they used washable paint to cover the mural, and when OCM clarified that the mural could be left up, they were able to restore it.
Clearly, their innate understanding of the local community influenced their decision to take special care of the artwork so that it could be restored because they understood its importance to the community.
In today's competitive marketplace, going local isn't just a niche approach; it's an important component of success in retail. Here are a few ways to pay tribute to your local community:
- Local products and partnerships: showcase regional artisans, farmers and suppliers.
- Community events: organize workshops, fundraisers and events that reflect local interests.
- Store design: utilize local materials, artwork, and historic elements.
- Staff involvement: hire local employees, train staff on community history, and encourage neighborhood involvement.
- Philanthropy: support local charitable organizations, sponsor community initiatives.
- Storytelling: share local legends, historical anecdotes, and cultural significance.
By engaging the local market, retailers can unlock the potential of community-oriented commerce.