MSOs, SSOs, COAs. Like every industry, cannabis has its share of acronyms and terminology. A common term in not only the cannabis space but also in the business world is "vertically integrated." What exactly does this term mean? Essentially, it refers to a business owning and controlling every stage of its supply chain.
Amazon is a prime (no pun intended) example of a vertically integrated company, managing everything from warehousing and logistics to retail operations. It controls its entire supply chain, including the production of consumer electronics like Kindles and Echo devices, and directly sells these products through its platform, ensuring a seamless shopping experience.
A vertically integrated cannabis company owns and operates across multiple segments—cultivation, manufacturing, distribution, and retail. We also refer to this as seed-to-sale vertical integration.
Seed-to-Sale Vertical Integration 101
Cannabis laws vary from state to state. Some states mandate vertical integration in the cannabis industry, aiming for better oversight of the seed-to-sale process and to prevent black market influences. This setup also helps address tax issues under Section 280E of the Federal Income Tax Code by allowing businesses to share overhead costs. Hopefully, with the DEA poised to reschedule cannabis from Schedule 1 to 3, this will lead to the removal of 280E for cannabis operators.
Conversely, other states ban vertical integration to avoid monopolization and promote competition, similar to historical regulations in the alcohol industry post-prohibition. Some states leave the decision to integrate vertically up to individual businesses.
The 4 Stages of Cannabis Seed to Sale Vertical Integration
- Cultivation: This initial stage involves growing the cannabis plants to maturity. After harvesting, the plants are trimmed and prepared for the next phase.
- Manufacturing: At this stage, the harvested cannabis undergoes processing, which may include extraction to isolate desired compounds for various product forms. The processed cannabis is then made into various products such as edibles, oils, or remains in flower form and packaged appropriately.
- Distribution: Once the cannabis products are ready, they enter the distribution stage. This phase covers the logistics and supply chain operations needed to get the products from the manufacturing facilities to retail locations.
- Retail: The final stage is where the products reach the consumer. Here, the products are sold in compliance with local state laws at dispensaries or an eCommerce platform with delivery.
Building Your Cannabis Tech Stack for Your Vertically Integrated Operations
Each stage typically requires different types of software to manage operations effectively. Often, companies specialize in software for specific stages but not others, leading to a "tech stack" of different applications. This necessitates robust API (Application Programming Interface) integrations, allowing each piece of software in the stack to communicate effectively.
The Importance of API Integration for Vertically Integrated Cannabis Companies
For a vertically integrated cannabis company, the ability to seamlessly integrate software solutions across different stages is crucial. Effective API integrations ensure that data flows smoothly from one stage to another without manual intervention, reducing errors and increasing efficiency.
This integration is essential for maintaining a real-time overview of operations, optimizing the supply chain, and ensuring compliance with regulatory requirements. API integration allows companies to leverage specialized software while maintaining a unified operational approach.
Deploying a Full Seed-to-Sale Vertically Integrated Supply Chain Software
Flourish Software is one of the few companies that address cannabis operator needs by offering an integrated tech stack spanning all four stages. While such systems offer numerous advantages, they also come with drawbacks.
Understanding the pros and cons of seed-to-sale vertically integrated software is essential for cannabis businesses to determine if this solution aligns with their operational needs and long-term goals.
Benefits of Deploying a Seed-to-Sale Vertical Integration Supply Chain Management Software
- Optimize Cannabis Operations: Simplifies management and boosts efficiency by centralizing data into one system, providing real-time insights for resource management and informed decision-making. Automated tracking from seed to sale and meticulous record-keeping enhance compliance and audit readiness, allowing quicker responses and strategic planning.
- Enhanced Chain of Custody Control: Keeps the entire chain of custody for cannabis products within a single platform. This approach records every transaction and product movement, enhancing security and simplifying compliance. With all records centralized, companies can quickly trace any product's history and location, minimizing errors and maintaining transparency throughout the lifecycle.
- Cost Efficiency and Unified Billing: Vertically integrated software reduces costs by consolidating multiple systems into one solution and simplifies financial management with a single bill, streamlining budgeting and reducing administrative overhead.
- Reduced Need for Multiple API Integrations: Using a single, integrated software platform, a vertically integrated cannabis company avoids the complexities and potential compatibility issues associated with multiple API integrations. This can lead to more reliable data handling and lower maintenance costs.
- Enhanced Customer Experience: Improved inventory management and forecasting ensure consistent product availability and variety, enhancing the customer experience. Additionally, using a solution like Flourish means having a single point of contact for support and troubleshooting, which simplifies communication and streamlines problem resolution.
- High Initial Investment: Significant financial and resource investments are required upfront.
- Complexity in Implementation: Integrating all processes into one system is complex and time-intensive.
- Dependency on a Single Vendor: Reliance on one vendor for updates and support introduces risks if the vendor does not stay current with industry changes.
- Flexibility Limitations: Generalized systems may lack the specialized flexibility needed for rapid adaptation to market or regulatory changes.
- Over-reliance on Technology: Centralization increases risks of operational disruptions due to system failures or security breaches.
Flourish offers cannabis operators an integrated solution that spans all four stages— cultivation, manufacturing, distribution, and retail. Our brands who work with us love our manufacturing software that they use to simply their Inbound and outbound operations.
- Addressing High Initial Investment: Flourish's scalable solutions allow businesses to start with basic features and expand as necessary, managing costs effectively.
- Simplifying Implementation: With user-friendly interfaces and dedicated support, Flourish eases the transition, assisting with data migration and system integration, spanning only 30 to 60 days.
- Vendor Dependence: Flourish continuously updates its platform to reflect industry changes and offers robust support, reducing dependency risks. Our customers have experienced Zero disruptions on 4/20 and other major retail holidays for the past 7 years.
- Enhanced Flexibility: Flourish's cannabis-specific design offers flexibility to adapt quickly to changes without losing functionality.
- Reducing Technological Risks: Flourish’s Advanced cybersecurity measures and robust data recovery processes ensure business continuity, even in adverse conditions.
How Parallel Runs Their Vertical Cannabis Operations with Flourish
Parallel Brands is a leading multi-state cannabis operator headquartered in Atlanta, Georgia. One of their prominent brands, Surterra Wellness, operates extensively in Florida, a vertically integrated cannabis state.
Surterra looked to unify and optimize its operations, including cultivation, manufacturing, and retail. Their existing systems couldn't scale, leading to inefficiencies and lost sales. Surterra needed a robust solution for increased visibility, proactive production planning, and streamlined data entry for state reporting. They chose Flourish Software for its ease of managing multiple facilities and licenses, data consistency, product transfer efficiency, and comprehensive data capture.
Implementing Flourish as their vertical seed-to-sale tech stack has significantly benefited Surterra. They have seen substantial time savings in compliance and gained complete inventory visibility, allowing them to optimize processes and support growth. The software's flexibility in managing plant groups and systematic inventory management has improved cultivation and manufacturing operations. In retail, Flourish's redesign of order handling systems reduced lost sales and improved efficiency.
With Flourish, Surterra can view their entire operation's performance, enhancing their ability to analyze and optimize across all facilities.
Flourish's vertically integrated seed-to-sale software streamlines operations and compliance in the cannabis industry. It stands out by offering cost-effective, scalable solutions with rapid implementation. The software ensures superior operational control, significant cost savings, and robust third-party integrations that minimize challenges and support growth. With Flourish's comprehensive tech stack, cannabis companies can efficiently manage their entire operation under one unified canopy (pun intended).