By Rick Schettino • December 21, 2018

Ultimate Guide to Building a Scalable Cannabis Business, Part 5 - Cannabis Business Software and Technology

This is last post in a 5-part, in-depth series with valuable information for those who wish to start or grow a cannabis business. This post will outline some considerations for elated to cannabis business software and technology.

A great business is built by great people and great ideas, but having the right technology in place is essential in today’s world. Technology powers just about everything a modern company does from tracking inventory and manpower to tracking sales and marketing.

Below are some of the problems that can arise from trying to integrate manual systems or multiple IT systems, or from using a system that is inadequate for the needs of a growing cannabis business.

These issues can cost time, money, and manpower to remediate. If they can be avoided they should be.

  • Inconsistencies and/or inaccuracies in accounting for inventory, orders, and sales

  • Lack of ability to track and process ordering and fulfillment

  • Lack of interoperability between departments and systems

  • Lack of ability to gather the information required to document compliance

  • Being unaware of changes to rules and regulations

While most business owners today understand the importance of having the proper information technology, the vast array of choices can become overwhelming. And with the rapid pace of change, old technology is constantly being updated to help clients remain competitive and new technologies being developed to give them an edge over the competition.

Here are three of the most common reasons given by business owners as barriers to adopting the right technology for their business:

  • Budget restrictions - Costs include implementation, support, maintenance, and training, and small and mid-sized businesses (SMBs) typically have limited resources to work with.

  • Lack of technical knowledge - Robust data systems require technical savvy to implement and manage and owners are not always tech savvy.

  • Workplace disruption - Implementing a robust data system requires setup and training, meanwhile, current processes might break down.

The benefits of implementing new technologies almost always outweigh the challenges involved in doing so — especially when it comes to scaling up business systems.

Here are some of the top benefits of implementing a good, robust ERP system.

  • Increased efficiencies - Get the most out of your resources

  • Increased productivity - Maximize your team’s production capacity

  • Scalability - Accommodate and facilitate growth

  • Compliance - Maintain compliance with state regulations

Most importantly, the right technology will help you get a handle on your business giving you greater insights. Having data on all aspects of your business at your fingertips can give you a deeper understanding of its inner workings.

Managing Finances

Managing finances is the least glamorous and least interesting aspect of running a business. According to data collected by inDinero, 40% of business owners say having to deal with bookkeeping, taxes, and payroll are the worst parts of owning a business. But, obviously, sound accounting practices are a necessary evil. And as your business grows, the more complicated your finances will become.

Businesses that don’t maintain accurate and detailed financial records are not only unable to measure key metrics related to profitability, it also exposes your company to government fines, audits, fraud, and theft.

Your company needs have the ability to not only track income, expenses, assets, and liabilities, project cash-flow, but also to provide data to funding sources and tax accountants.

If you can’t analyze the unit economics of your business, you can’t determine whether or not changes need to be made in order to improve your gross margins and identify the areas that need to be changed.

For example, one of the most important metrics that a company can measure is the cost to acquire a new customer — or CAC. In order to determine your CAC you need to be able to access marketing data, advertising data, and sales expense data.

Another important metric is the average lifetime value of a customer — or LTV. Being able to determine metrics such as CAC and LTV as they relate to individual marketing costs and sales channels allows you determine the return on investment of your marketing activities and to gain insight into which sales and acquisition channels provide the best customers. Whereas one sales channel might bring in a lot of customers but have a low LTV, another might bring in fewer customers that have a much higher LTV.

The ability to analyze the economics of your business gives you the power to identify areas where you can improve your gross margins.

As we mentioned, money often flows in and out of a business through disparate systems. For this reason, many companies struggle to properly manage to basic necessities such as cash flow and prepare profit and loss (P&L) statements and do proper tax preparation.

So, how is this level of detail achieved? How does a company collect all their financial data into one place where it can be properly accounted and analyzed? The answer once again is to integrate disparate systems into one robust ERP system.

Managing Data

As the saying goes, “if you can’t measure it, you can’t manage it.” Successful businesses live by this philosophy. According to statistics gathered by IBM, 62% of retailers say that the use of data and analytics are necessary for creating a competitive advantage.

The amount of data a business can collect and process has been growing in leaps and bounds in recent years. In fact, by some estimates, 90% of the world’s data was collected over the past two years. And the pace of progress continues at breakneck speed.

The number of technology platforms and systems which have arisen from digital record-keeping, the World Wide Web, and the Internet of Things (IoT) is staggering. Businesses today have access to a seemingly endless amount of data on all aspects of a business.

We collect so much data today that it’s difficult to know where to even begin mining it for actionable insights. The truth is, many companies are struggling with this.

Managing all that data is a monumental task. But somewhere in all that data are the keys to maximizing your company’s productivity and profits. But how do you deal with all the data flowing through your business?

Having the data is available doesn’t in and of itself make your company more efficient. In fact, all that data has zero value unless you’re able to mine it for valuable information and put it to good use.

Somewhere in all your data are keys to maximizing your company’s productivity and profits.

Quite often data is being collected by disparate systems. Website analytics are tracked in one system while sales data is tracked using a completely different system. The same goes for production data, inventory, fulfillment, and shipping metrics, human resources, and so on.

Being able to gather and analyze all this data in one system can facilitate the identification of operational inefficiencies and provide insights that can result in tactical improvements. But in order to facilitate this, all this data needs to be fully integrated into a single system.

For example, sales data can come in from multiple sources such as your website, direct sales, brick and mortar retail operations, and so on. All that sales data needs to be flowing into the same analytical system. And it also needs to be able to flow back out to other systems such as inventory management and accounting.  

Unfortunately, connecting all these interdependent systems is never easy. Combining multiple datasets with different formats and variable requires some serious technical know-how and takes a tremendous amount of time and resources. But, in the end, it’s worth every dollar. This is where a robust EPR system truly earns its keep.

As your company expands, your data can get even more complex and difficult to manage. But difficult does not have to mean impossible. The use of an ERP allows your company to dig deep into data to identify actionable insights which can increase your efficiency, productivity and profits. It also allows you to track the effects over time of various changes to production, marketing, sales, and so on.

The Value of Real-Time Reporting

Aggregating, tracking, and utilizing data is no easy task, but the value it can provide is immense. In fact, according to data collected by IBM, 62% of retailers report that the use of data and analytics gives their organization a competitive advantage.

When information is compartmentalized rather than centralized, it becomes difficult to identify relationships between the different datasets being generated by your company. In order to glean actionable insights, all your data needs to be brought together via a centralized information technology — your ERP. And in order to get the most value from your ERP, you need to have a strong strategy for data reporting. If you don’t know what reports to run and what metrics are associated with those reports, you can’t maximize the benefits provided by your ERP.

For example, it’s imperative that your company be able to track the cost of the goods or services that you offer. It’s also imperative to be able to track sales. By bringing these two reports together a company is not only able to determine gross profit, but also to glean insights into how each variable change over time and which variables have the biggest influence on the bottom line.

Another good example of the value of collating data from different departments is marketing. In order to measure your marketing, you need to compare its costs to its effects on sales. And sales trends can help your marketing department identify the products on which to focus marketing budgets. These are two otherwise unrelated metrics.

Here are just a few of the types of reports which rely on interdependent metrics:

  • Employee productivity and value

  • Cost-benefit analysis of changes to production

  • The relationship between quality control costs and lifetime value of a customer

  • The effects of pricing changes and optimal price points

  • Which production metrics have the most impact on profit

  • Effects of post-sale engagement on customer behavior

Seed-To-Sale Tracking Technology

The cannabis business is unique in many respects, and has some unique requirements. One of them is the need to track products from seed to sale.

In the cannabis industry, no company should be using an ERP that does not incorporate an integrated seed-to-sale tracking system.

As it suggests, the term seed-to-sale refers to the process of tracking plants and any preparations made from the plants from planting right on through the plant's sale. Another term used occasionally is track-and-trace.

Regulatory considerations are not the only reason for a cannabis business to invest in a robust seed-to-sale system. These systems also help managers to get a more granular view of the processes which are taking place within the company. This allows them to make adjustments in order to maximize production and profits.  With wholesale prices falling, growers, especially, must maintain any competitive advantage they can muster or find themselves under the wheels of their competition.

Seed to sale software can take many different forms, but it generally focuses on some particular tasks. Let’s take a look at some of the main features of a seed-to-sale system and how they work.

Tracking and Quality Control

Seed-to-sale tracking systems require some type of tagging system such as a barcode or QR code that can be scanned at every point in the growth and distribution process. By tracking each individual plant, an audit trail can be created which includes all data collected on single plants, groups of plants, and product batches.

A proper seed-to-sale tracking system allows a cultivator look at the yield and quality of a particular batch of flower and be able to determine exactly which strain was planted, where the seed or clone that produced that batch came from, and every process in between which was involved in growing.

Data can be collected on a variety of factors including strain, seed sources, dates of sprouting, planting, and harvest, light and water usage and costs, nutrient usage and pest control, weight, labor costs.

Quality considerations can also be tracked including such things as the consistency, scent, and flavors of each strain, as well as the reported effects down to the batch level.

One particular factor which is of paramount importance to consumers is the ability of growers, processors, and retailers to track strains. Because each strain has its own characteristics and produces a particular set of effects, consumers need to know that they are actually getting the strain they believe they are purchasing. With thousands of different strains available, a seed-to-sale system is critical.

Batches can also be tracked through the process of lab testing and data can be collected on the concentrations of cannabinoids and terpenes found in the batch, and identify any possible contaminants that might have infected a particular batch. This information is extremely useful to growers, processors, and retailers alike.

Equipment used in the process of cultivation, processing, and testing can also be tied into a seed-to-sale system in order to automate data collection. This technology is usually referred to as the internet of things, or IoT. IoT takes advantage of technology such as RFID tags (radio transponders), wifi enabled scanners and scales, and so on to automate logging of data. Also, automated systems used for lighting, water, and feeding, environmental data such as temperature and humidity, and digital scales, can be tied into a system allowing data to be tracked automatically.

Inventory Management

Inventory management is crucial in the cannabis business. Cannabis products can be extremely valuable, and not tracking their quantities and whereabouts at all times invites theft and regulatory risks. Missing or underweight inventory indicates a serious internal problem.

A proper inventory management system is also critical for security. Regulations often spell out which employees are allowed to handle products. A good system allows a company to scan employee badges and track any human resources involved in handling products. Biometric technology can also be tied into a system. Technology such as fingerprint recognition can be used for automated identification.

Point-Of-Sale Tracking

As we discussed, a built-in point-of-sale (POS) tracking system is imperative for retailers. By tying a POS system into a seed-to-sale system, retailers can track information such as which flower and concentrate strains they have in inventory, which grower or manufacturer produced them, and which distributor provided them.

Having instant access to this kind of data facilitates a customer-centric culture by protecting customers from tainted and mislabeled products. Customers’ opinions of products can also be tracked. Having this data at hand can help to protect and even improve a retailer’s valuable reputation by avoiding bad products, and being able to identify reliable product sources.

Choosing An ERP

Choosing the right ERP can give a business a strong foundation for expansion while having the wrong ERP can hold a company back from achieving their expansion goals.

A recent study by Brother International Corporation reported that 63% of small business owners feel overwhelmed by the wide variety of technologies available to them. But 72% feel that implementing the right technologies would offer a bigger return on their investment than hiring new employees.

So how do successful business owners go about choosing an ERP?

There are four basic steps that need to be taken to assure that you’re getting the right ERP for your business:

  1. Determine your needs

  2. Research available options

  3. Discuss your options with ERP vendors

  4. Decide which ERP to implement

 

Let’s look at each of these in detail.

Determine Your Information Technology Needs

Before you begin the search for the right ERP technology, start by making a list of all the systems that operate within your company. A proper ERP should be able to integrate all those systems into one framework.

It’s also important to consult with your managers, employees, and even your customers to be sure that all their needs are being considered. Take some time to determine some of the bottlenecks and production inefficiencies that are not being addressed by your current systems.

Some of the obvious systems that cannabis businesses must have a good handle on include cultivation tracking, inventory and warehouse control, sales, accounting, and so on. But each company may have its own way of operating. You might have ideas about how to run your company that you’d like to implement into your ERP.

Once you have a comprehensive list of your requirements prioritize your technology needs by the determining the potential impact each will have on your business. This will give you some talking points when you’re ready to discuss a technology solution with a vendor and help to assure that all your questions are answered and your needs are met.

Another consideration that needs to be addressed, is which of your managers or employees will need to be involved in the decision-making process so that they can be kept in the loop at all times and assist in evaluating potential solutions. They’ll be the ones most impacted by your choices.

Research Available Information Technologies

Researching potential ERP solutions starts with discussing it with your team including any consultants you may be working with. Often times these people have experience with a particular ERP that they can bring to the table.

The next step is usually to search online for things like “seed to sale systems” or “cannabis ERP” and so on. These terms are specific enough that they should bring up both vendor websites and media coverage of their solutions. Organize these sources into a bookmark folder so that you can quickly refer back to them later.

You’re probably going to have a lot of reading to do and videos to watch before you’re going to be ready to discuss your needs with an ERP vendor. Take the time to do it. Get as educated as you can on cannabis ERPs. The more aware you are of the pros and cons of these systems the more able you’ll be to make the right decision for your company.

If you know others in the business who you feel are a good model for your business, take the time to reach out to them and ask them what technology they use and how they feel about it.

Another great place to find information on cannabis data solutions is at trade shows and industry networking events. Find the people who are doing what you’re doing and pique their brains for information.

Discuss your options with ERP vendors

Once you’ve got a big picture of what your needs are and what your options are, and you’ve pored over the available information on a variety of potential solutions, it’s time to get on the phone and talk to cannabis ERP vendors.

Here are some of the questions you should be asking:

  • How does your software integrate with my business model?

  • Will it integrate with any current systems you have running?

  • Or will you need to replace your existing systems in order to implement their solution?

  • What are the total costs associated with implementing their solution including hardware, software, maintenance, training, and tech support?

  • Is it scalable, and what will it cost to expand?

  • Is the solution cloud-based?

  • What is their track record for updating and improving their solution?

  • Does their solution incorporate regulatory compliance features?

  • How often do they check your state’s regulatory board for updates to regulations?

  • What other companies are using their solution?

  • What are their future plans for their solution?

  • What is involved in implementing their solution?

  • How quickly can we be up and running with the solution?

  • How much training will your team need in order to properly utilize their solution?

  • What does the training consist of?

Of course, all vendors are going to tell you that their solution is superior to the others. It’s not your job to determine which solution is superior. You just need to determine which is right for your business.

Integrating new technology is a significant financial investment for your business. Do your due diligence to achieve the best return on investment with whatever solution(s) you choose.

Decide Which Solution To Implement

Even after you’ve done all your homework, choosing the right technology for your business will be difficult. Not only do you not want to waste your limited time and money adopting ineffective solutions by unstable companies, but implementing the wrong solutions has the potential to create problems rather than solve them.

No solution is going to be a one-size-fits-all solution. No matter which solution you choose, it will need to be customized for your business.

You’re going to need to answer the following questions to assess the appropriateness and scalability of the technology options you're evaluating.

  • Which vendors under consideration are innovating at the same pace as the industry and your company?

  • Which systems seemed the most user-friendly?

  • How well does the software integrate with your current systems?

  • Is the cost in line with competitive products?

  • What do current users of the system think about it?

  • What is involved in implementing each solution?

It’s important to not just take your vendor’s word for everything. It’s a good idea to take some time to talk to some other companies which are using the particular ERP in question. Here are some questions you might consider asking when speaking to them.

  • Overall, are they happy with the product?

  • How quickly were they able to implement the solution?

  • Were there any delays in the expected implementation and why?

  • Was the employee training adequate, or was more training required?

  • How engaged has the vendor been with your team?

  • Has any substantial tech support been required?

  • How quickly does the vendor respond to requests?

  • Does their solution thoroughly incorporate state regulations?

  • What aspects of the system do they think could use improvement?

  • Are they glad they chose this particular system and vendor?

  • Do they recommend a particular system?

Once you and your team have given ample consideration to all your options, and the implications of implementing a particular system, and you’ve spoken to managers at other businesses which have been using each system, you should be ready to make a final decision.   

Take the time to sit down with your vendor’s sales rep one last time to go over any last questions you may have and to get a complete understanding of the next steps involved in implementation. Be sure to also meet with your entire team again to discuss your choice and let them know what to expect next, how long it will take to implement, what training they will be going through, and so forth.

ERP Resources

Reports

Implementing Technology

Integrating a new ERP system into your company’s SOP is a significant operational challenge. As the nerve center for all operations, an ERP system can be highly complex. Implementation requires significant financial and human resources. And, quite often, the process can cause some measure of chaos within the company’s current operating procedures.

Cost overruns and project creep are also not uncommon when implementing an ERP. But these issues can be avoided or at least mitigated through careful consideration and planning.

According to research from Panorama Consulting, roughly 74 percent of businesses that undertake an ERP implementation exceed their original budget. And nearly a quarter of them experience unexpected technical or organizational issues in the process.

Implementing an ERP system can take anywhere from four months to more than a year to complete. A complete understanding of the various phases of a typical ERP implementation can go a long way to ensure smooth implementation.

Once you have evaluated the various cannabis-focused ERP’s and have decided which system your company will be utilizing, there are six phases involved in implementing an ERP.

  1. Configuration

  2. Customization

  3. Data conversion

  4. Integration

  5. Testing

  6. Training

Let’s take a look at each of these phases in a little more detail.

Configuration

There is no such thing as a plug-and-play ERP. Any ERP system that is worth investing your time and money into will require substantial custom configuration. This is always the first step in adapting off-the-shelf ERP software to your specific needs and preferences. In a typical ERP system, there can be a myriad of custom system configurations which touch each and every group in your organization.

Customization

Customization is the process of adjusting the configuration of a core ERP system to match the exact needs of your company and operating procedures. This often involves altering the software or adding custom-coded modules needed to interface with your existing systems.

Oftentimes, a company that has been up and running for some time will have systems that are embedded in its operations or critical to its competitive advantage which cannot be replaced. Instead, the ERP must be customized to interface with these systems. Additional security demands will also arise when customizing ERP software, especially if your ERP vendor is not maintaining the modifications.

Data Conversion

Your ERP’s effectiveness is limited by the data that you are able to feed into it. Considering how your company will convert your existing data to work with your new ERP is mission critical. Most often, the data that you’re already collecting will not match the exact data formats of your ERP. This can be especially true for financial data.

In most cases, data will be to be exported, reconfigured, and imported with a new format. In extreme cases, data will need to be input manually which can be time-consuming and costly. Any ERP vendor worthy of your business will have experience in this area and be able to assist in planning the data conversion process.

Integration

Rarely will an ERP replace every single system used to run your business. In most cases, you will need to seamlessly integrate some of your existing systems and software from other vendors into your new ERP. During the integration phase, you’ll establish how your new ERP system will communicate with your existing systems in a manner which provides real-time access to all data being generated by these disparate systems.

Testing

Never is there a case where you should begin relying on an ERP which has been configured, customized, and integrated without first being thoroughly tested. Implementing without testing can result in extremely costly mistakes.

Testing involves creating an environment where a subset of your company’s data which has been exported from your existing systems can be run through your new ERP system without affecting your existing systems in any way. This assures that any technical issues which arise will not result in catastrophic mistakes which could propagate bad data throughout your live system.

Proper testing involves verifying that all the integration and customization is working properly and providing the desired results including the proper handling of data, the right permissions for all users, adequate data throughput to the cloud, proper integration with internal IT systems such as desktop computers and other data-dependent systems, proper backup of data and disaster recovery.

Another area for which thorough testing is a must is security. Your data must be secure from end-to-end within the system. This includes preventing data which is in transit from being intercepted and stored data from being accessed. Additionally, your security protocols should be able to detect and report any such activity.

Training

Also, before your ERP can go live, all employees who will need to access the system will need to be trained, properly practiced, and tested to ensure that it is being used properly. Insufficient education and live training, and lack of examination of proficiency are often weakest links in the implementation process and can lead to stumbling blocks to adoption.

Team Building

The purpose of an ERP is to act as a hub for all data produced by a business. That includes data from all departments. Oftentimes there are interdepartmental dependencies where data being managed by one department relates to data being managed by another department. Allowing each department to operate independently of the others can result in inefficiencies and sometimes costly mistakes. When managers in each department have a more holistic understanding of how their mission interfaces with and affects that of other departments things tend to run more smoothly.


Conclusion

The cannabis industry is facing an explosion due to the recent shifts in attitudes and laws. This shift is being enabled by the decentralization and free flow of information. The ability to gather, combine and analyze information from a variety of sources creates value for industry, consumers and taxpayers alike. Along with its expansion, the legal cannabis market is helping to channel money from black markets into local economies.

The same can be true for your business. Having centralized access to decentralized information such as regulatory rules, legal strategies, financial information, enterprise planning, demand forecasting, production and supply chain data, human resources, and so on, gives companies actionable insights which can help them to remain compliant, raise capital, improve efficiency, optimize marketing and strategies, boost sales, maximize profits, and plan for the future.

Having a handle on a wide variety of factors and variables, and being able to consolidate them, allows companies to measure and manage their business, and ultimately, to scale and expand.

The ability to funnel the variety of compartmentalized data into a centralized reporting system can give a company a huge competitive advantage. But collecting and gathering all this data is no easy task. It requires robust, sophisticated resource tracking technology.

In the cannabis industry, in particular, this must include instant access to government regulations, seed-to-sale production tracking, regulated substance supply chains, customer behavior, industry-specific training and security and much more.

Although it has the potential to be quite profitable, the cannabis industry presents entrepreneurs a variety of complex challenges. Yes, it’s difficult to measure and manage these challenges, but it’s not impossible. Central to the success of every growing cannabis company is the ability to exploit technology which can bring all the information required for success into one place in order to identify and facilitate competitive advantages.

Additional Resources

Books