Legal Recreational Marijuana: How to Manage a Brand New Supply Chain

Eric Limon/Adobe Stock

Admittedly, I haven’t immersed myself in studying marijuana since I undertook a research project in eighth grade on the cannabis sativa plant and THC that ended up in a written report.

The findings were largely from encyclopedic CD-ROMs and textbooks (open access to Netscape Navigator was a year or two away). The resulting report may have had a photo or two for flair, as well as the requisite section on the plant’s numerous nicknames.

It wasn’t until my college years that I undertook a different research approach to the topic, but I hesitate to digress.

Spend Matters’ editorial team has also been a bit negligent in exploring the supply chain implications of the recreational cannabis industry, because, well, for one thing, it’s still federally illegal, right?

But the relatively recent votes to legalize either medical or recreational marijuana in seven new states during the November 2016 election — California, Maine, Massachusetts, Nevada (recreational); and Arkansas, Florida and North Dakota (medical) — have opened our eyes to the vast opportunities for players on all ends of the supply chain within this young industry.

How Big Is the Recreational Cannabis Business?

Both recent sales trends and economic growth projections are, by most accounts, going gangbusters.

According to analysis compiled by Marijuana Business Daily (MBD), in the two earliest markets to legalize recreational marijuana, Colorado and Washington state respectively, recreational customers “spent over $1.5 billion on marijuana in 2016, ballooning a combined 66% from the previous year.” Meanwhile, recreational sales tripled in Oregon from February to August 2016, according to MBD.

As a result, in Washington alone, $401 million in excise tax was collected by that state’s Liquor and Cannabis Control Board, according to 502data.com.

Ultimately, projections show that “the total economic impact of legal marijuana sales rising from $16 billion–$18 billion in 2016 to $48 billion–$68 billion by 2021 — a 241% increase,” writes Eli McVey, the principal author of MBD’s 2017 report on the industry, in this post.

Courtesy of Marijuana Business Daily

Indeed, with new markets in the next crop of states set to come online, California alone may account for more than the total retail sales of the entire cannabis industry expected in 2017, according to that publication.

“We are truly looking at the next gold rush,” Khurshid Khoja, principal at Greenbridge Corporate Counsel, a San Francisco-based law firm serving the marijuana industry, told MBD in the wake of the 2016 election.

The Main Pain for Marijuana Purchasing Managers

For Josh Best, the gold rush struck in August 2015.

Having graduated from SUNY Fredonia in western New York with a business degree, he followed his brother out to Denver to join the family business, as it were. “The owners are my dad’s first cousins, so I’ve been following them for years and the progress they’ve made,” said Best. “I saw more opportunity out here and figured it was a good industry to get involved with.”

Best worked his way up to effectively become the CPO of Medicine Man, the largest dispensary in Colorado, and is the chief buyer for all three of the company’s stores. The operation has a 40,000-square-foot grow operation attached to its flagship Denver store, near the airport, which supplies its medical and recreational inventory.

A lot of dispensaries rely on pure wholesale, bringing marijuana flower from different suppliers, according to Best, but this component of vertical integration has served Medicine Man’s brand well with its customers. The company was founded in 2010, and “we just stick to our motto,” Best said. “‘We grow it, so we know it.’”

The biggest boom within the recreational (also known as “adult-use”) marijuana market has arguably revolved around products that are infused with THC, such as edibles. Managing orders for SKUs such as factory-produced gummies, brownies and the like is an ever-increasing part of each dispensary/retail shop’s business.

However, like many others on the practitioner side of this business, Best couldn’t keep up with the fragmented nature of order management and inventory control. Besides the regulatory implications for Best’s day-to-day (hand-checking whether the gummies stock he’s ordered has a triangle-shaped THC stamp on each and every serving, for example), the nuts and bolts of the purchasing process got tiresome for him.

The twin challenge of working within such a nascent business that also happens to be federally illegal unfortunately translated into loads of phone calls, emails, texts, even scribbled notes between purchasing manager and various vendors.

“Emailing back and forth all day was so...time-consuming,” Best said.

When dispensaries such as Medicine Man began outgrowing even shared Google Sheets, one new player from the SaaS sphere came to the rescue to streamline the sourcing, purchasing, invoicing and vendor management between marijuana retailers and suppliers.

Enter: "The Salesforce.com of bud."

Stay tuned for Part 2 to learn about how a simple B2B e-commerce platform began helping purchasing managers focus on supplier relationships rather than keeping up with texts and emails.

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