The cannabis industry has entered an identity crisis. Although clearly stoked by withering taxation and exacerbated by inflation crushing the average consumer’s buying power, those are not the key issues facing the industry. In order to successfully navigate the cannabis industry’s identity crisis your business needs to take an internal inventory of what you are good and not so good at and plot a strategic direction to a successful future.
What Identity Crisis?
The root cause of the identity crisis in cannabis is primarily the vertical integration of so many companies. Cannabis is a highly complex industry. It has foundational aspects of the agricultural, manufacturing, pharmaceutical, consumer packaged goods, controlled substances and retail industries all smashed together into one. Each of those industries are highly complex all by themselves. Cannabis tries to do all of that, and, more often than not, all within the same company or organization. It’s not just a tall order, it’s an impossible one.
Cultivation, Manufacturing and Retail are Each Difficult
Cannabis cultivation is difficult all by itself. From facility design to strain selection, genetics maintenance, propagation and growth, pest control, yield maximization and post harvest processing, growing the incredible and incredibly picky cannabis plant is hard work. If a company did nothing but grow the best flower and biomass possible, they would be fully engaged.
But most companies combine cultivation with manufacturing. Manufacturing or product production has its own set of complexities. These include the selection of extraction methodologies, the constant drumbeat for new products and higher potency and the challenges of testing and packaging those new products. On their own these make for a very difficult business. Combined with cultivation, it makes for a push-me-pull-you endless tug-of-war for resources and attention.
Then there’s branding and retail. Even if a company simply grew and processed its own products that would be complex enough. Creating successful brands and marketing campaigns for those products is enough to keep a team of people fully employed. But then retail is stacked on top of that. Retail has its own challenges ranging from location, to merchandising, to staffing, to marketing, promotions and events. This is an entirely different discipline and complex all on its own.
Smart Regulatory and Financial Governance Make it Even Harder
Throw in regulatory issues, taxes, the usual “running a business” challenges, the fact that none of that is deductible on your income taxes and the constant pressure from being a cash intensive business and you have a situation like no other in any other industry. Which one do you focus on? Where do you invest your capital and in what proportion? How can you accurately determine a return on that investment?
That is where the identity crisis comes in. In order for a company to make hard decisions about scarce resources, the question that must always be answered is, “what kind of company are we?” Some companies are already feeling the crisis and have started to look at specialization. Other companies (e.g., Cookies) have already focused in on their strength, avoided the painful realities of the industry in clever ways and found profitability by staying focused.
But if you are currently vertically integrated and trying to determine which way to turn, making these decisions are akin to deciding whether to cut off your arm or your leg.
Navigating the Identity Crisis
Right now, in order to successfully weather the cannabis industry’s identity crisis as well as to address the user adoption gap, smart companies need to be developing strategies to differentiate and win. Here are some ways to understand your company’s core identity to build toward actions that you can take in your business right now to get prepared.
Determine your strongest ability
What is that thing you do better than anyone else? This is sometimes very difficult to do, especially in a company with multiple teams that have their own claim to the company’s success. But you have to be honest with yourself: are you better at growing than extracting? Do you make products better than you brand and market them, or vice versa?
Get your team thinking about your company’s core expertise. When you make that determination, then begin thinking about whether focusing your efforts and capital to just doing that one thing might be more lucrative than trying to do it all.
Determine your best and most profitable offering
What is your best and most profitable offering … and why? Are you best at flower? Vapes? Tinctures? Edibles? Something else? What is it that if your company stopped making it, your revenues and profitability would crater in a month? And if it’s not just one product – is it anything with a particular brand? Or does your company create winning brands no matter what’s in the package?
If you haven’t figured out what your strongest ability is, this should give you a very big clue as to what it is. This is the kind of information you need to know to set your company’s identity and then build it ever stronger on that basis. If you have never read Jim Collins’ book, Good to Great, get it and read it.
Understand who your best partners are
Another way to find out what you should be focusing on is by looking at your best partners. They may be retailers, they may be vendors, they may be distributors. What do they come to you for? What is it that you need them for?
If you know what your trading partners look to you for, you will have an idea what you do best, and what you should likely focus your efforts on.
Figuring out your specialization challenges
Sometimes the best way to come at an issue is in reverse. Rather than looking for what you do best or what you most enjoy doing or what people look to you to provide, think about which road is the most challenging. What is going to be hard about changing your business from a vertically integrated business into just a cultivator, or manufacturer, or retailer, or a branding company?
When considering these challenges to specialization, think about external factors as well. Are there too many businesses already engaged in that part of the market? Are you really special or do those other competitors actually make better products or have catchier brands and you just have better connections…right now? Is there a way for you to capitalize on what you do well that nobody else is doing right now?
Getting Outside Help
Oftentimes, one of the hardest things to do is look in the mirror and be honest. It may also be hard to look objectively at your own numbers. Companies are frequently overly optimistic about their prospects. Sometimes they are also overly pessimistic about their abilities – think: imposter syndrome. It is likely a good idea to get some help with the exercise that will help you become a specialized company.
If you’re looking for help plotting your strategic future, come talk with us at Navvee. We’ll bring a purely business perspective to your company, help you figure out how to accurately determine your strengths and weaknesses, and map out what that means for the strategic future of your company.