As 2023 settles into its second full month, economic challenges continue to plague every industry, ranging from rising inflation and increasing interest rates to fears that a true recession is in the offing. For the cannabis industry, these challenges are compounded by industry-specific concerns that include declining demand and an overabundant supply as well as ongoing federal blocks to legalization efforts and banking legislation.
But according to Bart Schaneman in a MJBizDaily article, 2023 may turn things around. He writes: “The new year brings renewed optimism and hope for the marijuana industry, which could see a raft of impactful trends for cannabis business executives.”
Let’s take a look at three of Schaneman’s cannabis trends and how a cannabis ERP solution, like CannaBusiness ERP, can help cannabis professionals overcome possible obstacles and capitalize on industry progress.
1. Market Consolidation is Inevitable
Though Schaneman offers cannabis professionals hope for the year ahead, it appears cannabis professionals should also expect to see companies fall to the wayside due to falling prices in mature recreational markets, such as Colorado and Washington state, and saturation in other markets. In response, companies are cutting employees in an attempt to right the boat—but it’s not enough.
“Despite the cost-cutting measures, many companies will still fail this year, licenses will be absorbed by bigger, corporate-style businesses and only the most cost-efficient players will survive,” Schaneman writes.
This means cannabis businesses must become lean operators. “Leanness” in this case requires businesses to thoroughly examine their operations, and with an almost ruthless mindset, eliminate valueless processes. Simultaneously, they need to find out what their customers want and need and cater to those specific wants and needs.
One of the best ways to become a lean operation is by implementing a modern cannabis ERP. With it, cannabis businesses can integrate departments and centralize their data within a single database. Visibility into finance, seed-to-sale, compliance, quality and traceability processes provides a clear picture of how well—or not well—they’re performing. It also enables businesses to:
- Establish a single, real-time source of truth every member of the company can access
- Minimize time-consuming administrative tasks
- Track, manage and optimize inventory
- Reduce waste
- Streamline production planning
- Make decisive, data-backed decisions
Altogether, these cannabis software benefits help cannabis businesses achieve a lean profile that will hold them in good stead in today’s rocky economic climate.
2. Smaller but More Frequent Mergers and Acquisitions
Mergers and acquisitions (M&A) historically have been a popular method for cannabis businesses to expand into new markets—either in their own state or in other states. In fact, becoming a multi-state operator or MSO through M&A was huge in 2021. In an MJBizDaily report, author Jeff Smith noted that there were “306 M&A transactions through Dec. 17, up well over threefold from the 86 recorded for the same period of 2020.”
Unfortunately, the belief that 2022 would also be a banner year for M&A transactions was not realized. Schaneman reports that company deals over $100 million are now “few and far between” and that many of the deals that have happened this year fell below $25 million. One reason he gives for the slowdown is limited access to capital across the US, which is substantiated by Stefan Sykes in a CNBC article. Sykes writes:
For now, however, investment money is drying up as the market gets more crowded. According to Viridian Capital Advisors, a New York-based cannabis advisory firm, total U.S. marijuana capital raised year to date is down 62.6% from a year ago, and equity financing is down 96.3%, from $2.1 billion a year ago to $78 million currently. Part of the problem, experts said, is that investors are tired of waiting for federal regulation.
Sykes explains that because federal approval is still lacking, cannabis businesses still don’t have access to traditional banking services or institutional capital—all of which contributes to smaller M&As. But the good news is that more frequent deals may occur in 2023 as license holders seek to exit the market, creating opportunities for single-state operators (SSOs) and MSOs that have secured financial backing to expand their businesses.
As smaller but more frequent M&A transactions take place, cannabis businesses relying on a cannabis ERP solution are able to address the challenges of multi-site, multi-company operations. According to NexTec Group’s “Guide to Expanding into New Markets,” the ERP solution calms the chaos of expansion:
With an ERP solution designed for MSOs, multi-company transactions are streamlined and automatically accounted for across multiple entities. This allows users to eliminate the need for duplicate data entry, ensure proper financial traceability and get a consolidated view of transactions across multiple companies (thus making consolidation reporting easier and more efficient).
The free guide also notes additional benefits of cannabis software, including the ability to:
- Easily maintain audit trails, perform recalls, segregate duties during cultivation and trace production cycle interactions
- Record information about all cannabis operations
- Integrate operations of multiple companies
- Standardize quality control measures across businesses
- Streamline operations
- Grow unimpeded by aging, disconnected systems
3. Changing Consumer Preferences
Industry trends are often dictated by consumers, and as younger cannabis consumers enter the legal cannabis market, cannabis trends are shifting to accommodate their preferences. For example, younger consumers favor vapor pens over flower, but Schaneman writes that flower sales—which dominate the market—will keep growing in 2023. Vapes, concentrates and edibles will also take up some of the market share as “consumers become more sophisticated.”
A more sophisticated consumer base means cannabis companies must be prepared to offer products their customers want in order to keep their business. Cannabis businesses will also need to flex with other market changes, and this customer-first focus and flexibility are possible with cannabis software. As an industry-specific tool, cannabis software helps cannabis cultivators and processors adapt to evolving market dynamics.
For instance, if a cultivator wants to add a processing plant, a cannabis ERP solution can accommodate their cannabis and food-based requirements easily in one system, addressing the challenges and providing the functionality for producing edibles and infused products. Such agile manufacturing capabilities are a necessity as the cannabis industry continues to mature.
A Bright Future with CannaBusiness ERP
Chris Wash, former CEO of MJBizDaily, told Sykes of CNBC that the economic ups and downs of 2022 and the unknowns of 2023 won’t stop the cannabis industry. “The long-term horizon is extremely bright. This is just what industries go through.”
The outlook is bright. According to the MJBiz Factbook, in 2023, the cannabis retail sales estimate is $38.8 Billion (medical and recreational combined)—a substantial jump up from the $27 Billion in 2021.
To take advantage of the growing industry and to stay on top of evolving cannabis trends, cannabis businesses should consider implementing CannaBusiness ERP. Built in Sage X3 and configured by NexTec experts who have deep industry knowledge, our cannabis software can handle the financial complexities of MSOs with personalized features while helping cannabis businesses manage every aspect of the business and equipping users with the tools they need to track key metrics and uncover real-time insights into their business.
For more information about CannaBusiness ERP, contact us today. We’d love to chat.