4 Perspectives on The Maturation of the Cannabis Industry

4 Perspectives on The Maturation of the Cannabis Industry

Cannabis
June 11, 2019 by Colin Munch
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Recreational cannabis was legalized in Canada on October 17th, 2018, after a long public awareness campaign waged legally, digitally, and personally across the country. The legalization of cannabis in Canada was a major milestone internationally and motivated many other nations to move forward on their own legalization legislation. As the cannabis industry moves out of
cannabis-maturation-industry

Recreational cannabis was legalized in Canada on October 17th, 2018, after a long public awareness campaign waged legally, digitally, and personally across the country. The legalization of cannabis in Canada was a major milestone internationally and motivated many other nations to move forward on their own legalization legislation.

As the cannabis industry moves out of the initial growing pains of compliance, cultivation, supply, and advertising, many experts in the industry are looking forward to the maturation of the cannabis industry in the third decade of the 21st century. Cannabis is expected to become a $130 billion business in the next decade, but how do we get to those numbers?

Labour and Talent

“When I first joined, I was nervous. I didn’t want to tell people what I was doing,” admits Maurizio Calconi, Vice President of Recruitment Services at Cannabis Compliance Inc “That stigma is gone now.

CCI calls itself “Canada’s original cannabis consulting firm” and Calconi is focused on providing the best labour and talent to the hundreds of new and established cannabis companies in Canada.

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Calconi is proud of his work in the cannabis industry and adamant that things will only get better. “Look at what this industry has done. Think about the job creation,” He says, “There are people who came out and built businesses from scratch and created thousands of jobs for people! There is nothing to do but take pride in what we’ve accomplished here.”

With the pace of the industry, talent shortages are bound to occur. While there is no shortage of marketing and sales talent, high quality, senior leaders are harder to find. Calconi explains there are four key roles in high demand: head of labs, head of security, head of cultivation (“master growers”), and head of quality assurance.

“You have to make sure the candidate has the right skillset.” Calconi explains, “Head of security is responsible for the strategic development for the security systems of the whole company. Head of labs are people coming from big pharmaceutical companies.”

Education is picking up the slack in issue of key talent. CCI provides training programs for their clients to give their talent the expertise required to thrive in cannabis, “We might not be able to find a master grower who comes from a cannabis space, but we can find you a master grower who comes from the agricultural space and put them through our training program. In four to six months, they’ll be ready to grow your cannabis.”  

CCI also provides training programs for quality assurance and will soon launch a similar program of security heads, all focused on competence and compliance in cannabis. As the cannabis industry matures, many are jumping in with both feet to take advantage of the growth. Calconi is clear that CCI’s goal is to find the right fit for each client, “You might not be able to get a job with Canopy,” he explains, “but you could get a job with a smaller player, a tier 2 player, where the fit is more correct.”

Where does he see the industry going? His enthusiasm is infectious: “Fantastic. Period. Fantastic. I can’t think of anywhere else to be, I love it, people who are in it love being in it. I walk into the office and its a sea of smiles. The industry is feeling the same thing. There’s a lot of work to be done but it’s exciting.”

Data Management and Public Perception

While Maurizio Calconi and CCI are focused on finding the right talent for their clients, people are only one part of a business. Supply chain issues have plagued the Canadian cannabis industry since legalization LINK and the sheer volume of data involved in running a cannabis company has proven to be challenging.

There is the nagging issue of public perception of the industry. Despite legalization in many countries, the perception of cannabis as a dangerous recreational drug is built on decades of stigma that the industry is struggling to overcome. We spoke to an industry expert who wished to remain anonymous, as their organization has dealings with many companies who are still wary of the negative connotations towards cannabis, especially in the US.

“We have conversations about how to move forward in an industry that has been seen as criminal,” they told TrendScan, “It’s a whole perception that needs to change.”

This particular organization has found a novel solution to addressing the controversy: not addressing it at all. “We’re trying to understand these perspectives on the industry and make sure the product is looked at as any other product would be. It’s about looking at a challenge and providing a solution to that challenge rather than the ‘topic’ of the product.”

Risk management is top of mind for any large company. Research is key: “Understanding who’s working in cannabis, identifying potential risk, and ensuring due diligence is in place. Making sure those companies are legit.”

Digital Marketing and Advertising

John Min knows all about research and due diligence: The Founder and President of Adcession Media Inc.

spent all of 2018 getting ready for legalization day, but found that his potential clients weren’t quite ready for the digital marketing services his company provides.

“There weren’t a lot of businesses focused on digital marketing at the time (of legalization) as they were more focused on cultivation, production and logistics,” He told TrendScan, “so it’s taken a lot of time and patience for our core target customers to be ready.”

Adcession is an ad network that focuses on compliance in the Canadian cannabis industry. Digital marketing is challenging enough in 2019, but is even more so with the minefield of potential penalties that can be levied against a company that doesn’t do its due diligence.

“72% of the digital marketplace is not accessible to cannabis advertisers as the two biggest players won’t accept ads.” Min says, due to Google and Facebook’s domination of the online advertising space. He gives an example: “If you’re an influencer on Instagram, which is a Facebook product, with 10,000 followers and you’re promoting cannabis on a daily basis, there’s a really good chance you’ll get shut down. You just gotta know who to play with in the remaining 28% of the marketplace.”

When asked why Google and Facebook are so reluctant to engage in cannabis marketing, Min’s answer was similar to the one given to us by our anonymous source above: Risk management. “They have a lot to lose.” He explains, “Facebook and Google are under the cross-hairs of all international government regulators. They have to tread very lightly.”

Research and preparation are the names of the game at Adcession and it seems to be paying off: they recently announced a major US digital campaign. “We took almost a year of preparation and research,” Min says of Adcession’s first mover advantage, “It’s really important that you are well prepared and hit the ground running when you’re ready to market digitally in this space.”

Tellingly, Adcession’s target customers are similar to Maurizio Calconi’s at CCI: the mid-tier, smaller players, not juggernauts like Canopy. “The market we’re trying to address is not the major players,” He explains, “We see the mid-tier market as our core target audience from a B2B perspective.”

Supply Chain

“This reminds me of when Yellow Pages was trying to go online way back in the day,” Says Greg Marlin, CTO of Itoco, a Canadian/Colombian cannabis cultivation company, “This was even before Google. People would call up companies listed on YellowPages.com that didn’t have any inventory to sell! These companies had customers trying to bribe them to sell to them first, not somebody else, and the sales cycle was almost instant. That’s what cannabis reminds me of.”

While many in the industry are 100% positive about the potential of a market set to grow from $590 million to $22 billion in three years, Marlin’s supply chain background serves to temper his enthusiasm. “Everyone says they can’t serve the market now, how are they gonna serve a market 40 times the size in three years?” His answer is blunt: “They’re not!”

Itoco’s extraction and processing facility is a short drive from the port city of Bogota in Colombia, one of the most cannabis-friendly countries on Earth. Marlin is confident in Itoco’s product, but the cannabis industry maturation issues are real and complex. He sees many cannabis companies who have come from agricultural backgrounds, nut oil extraction companies that now extract CBD oil for example, and anticipates a lot of “make or buy” decisions to be forthcoming

“I look at things in the market,” He explains, “and it either does what I want to do or it doesn’t and I need to build a version of it for myself.” Marlin expects many companies will come to similar conclusions and begin to develop their own solutions to common problems, that will then be spun off into smaller companies, to serve the industry

Marlin describes this as leading to ‘bake sales’, where companies take a few of these solution options and see which one works best for them- standard procedure for any business. However, he eyes potential bumps in the road with regards to cannabis:

“Next year,” he explains, “and the year after that, companies will be calling people up to have these bake sales and the companies won’t have any product. Then it’s not about finding the right one–it’s about finding anyone that can do it.”

This may lead to major headaches for businesses lower on the supply chain, like retailers. “Which licensed producer can provide not only quality, but reliable availability? Who can scale up? Who can commit? If you’re selling $10 million a month but one month your supplier can’t provide you with the product, that’s $10 million lost!”

This gap in operational expertise is exactly what is being filled by Cannabis Compliance, and there will be plenty of mid-tier companies, exactly the ones John Min is targeting at Adcession, who will be happy to outsource to Adcession so they can focus on issues like supply chain and security.

“Nobody has been through a market that goes from $590 million to $22 billion in three years.” Says Marlin, “That is intense pressure. There’ll be a lot of people who have more orders than they can deliver. Everyone says ‘That’s a good problem to have’ until they have it!”

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(Note: In this article we mention Itoco. Itoco is a client of TrendScan and members of the TrendScan team own stock and options to stock in Itoco.)