Cannabis Supply Chain Management and the Role of Data
Cannabis cultivators maintain a fascinating role in the cannabis supply chain. Most downstream operations depend on strong cultivation partners. In 2020, growers faced a series of changes and challenges that illuminate the value of data to the success of supply chains in the legal cannabis industry. From retailers, to manufacturers and distributors, the cannabis supply chain’s raw material is the flower that cultivators produce.
Data is abundant on the farm, existing in various forms for use by cultivation operations and their stakeholders. Visibility and transparency into these data sets will surely be essential for cannabis supply chains in 2021. Keep reading for a deep dive into cultivation data and the impact it can have across the supply chain.
Cultivators Role in the Cannabis Supply Chain
The cannabis supply chain is complex and diverse. While federal regulations limit doing business within state lines, the network of producers, manufacturers, retailers and brokers is vast. There is no supply chain without growers. Seed to sale begins at the nursery or cultivation site. Cultivators truly influence the whole supply chain, and yet they are also influenced by it. Specifically, cultivators listen to the market through the retail channels and are informed of evolving trends in demand. While consumers are referred to as the ‘end user’, they are also the source of data or feedback that moves back up the supply chain. It’s a two-way street when it comes to learning and optimizing operations and performance.
Cultivation operations are sometimes stand-alone businesses or they’re one part of a group of cannabis licenses that perform other functions in the supply chain like extraction, distribution and retail. These businesses refer to themselves as vertically integrated.
Where Cannabis Flower Goes After Leaving the Farm
There are a multitude of variations on the cultivation business model. Some grows are a part of a vertically integrated business, some cultivate solely for wholesale markets, and others brand themselves and deliver their own products to retailers.
Some cultivators grow for their own brand and package up their flower into pre-rolls and jars. They can self-distribute directly to dispensaries or work with distributors to gain better exposure to retailers across their state.
Other cannabis cultivators transfer their flower and/or trim to their manufacturing facility for value-add processing. A large amount of flower and trim produced by cultivators enters the wholesale market where bulk units can pass many hands before being packaged or extracted.
There are many combinations of the above for farmers. For instance, one farmer might brand and package all of his top cannabis flower for retail, while selling his small buds and trim to a broker who will then sell to a concentrate manufacturer.
The cannabis supply chain has many participants and brokers benefiting from the transfer of goods through the network. The relationships with others in the market drives a price-competitive marketplace. One key idea to consider is the value-add in the supply chain. On the one hand, a vertically integrated business can be thought of as a number of separate, distinct business. Extraction of concentrates from flower is a wholly different operation than cultivation of flower. Different licenses, different incorporations, etc.
However, if you consider the margin a grower receives from selling their cannabis to a wholesaler vs the increased margin from extracting and packaging both branded flower and vape pens, you’ll see the total margin and profit basis is higher. Now whether the costs, risks and effort are worth it, given the complexities of the various business types in the industry, is another matter.
Why Cannabis Cultivators’ Position in the Market is So Important
From the outside, the cannabis industry appears to be a gold rush. But at closer look, the startup costs and regulatory compliance requirements make it a difficult one to operate in, at profit. Vertically integrated operations are capital-intensive with a lot of risk and increased compliance responsibility.
Those trying to perform all functions in the supply chain may not perform at the same level as those focusing on just one segment, like cultivation. There are certainly exceptions to the rule, but it’s more likely that those focusing solely on cultivation will produce the best product.
Quality of flower produced sets the tone for the whole supply chain. For extract manufacturers, the material going into their lab will determine their yields and efficiencies and ultimately profit margins. This is why a close relationship between operators is important. Some growers are even contracted out a year in advance to produce a specific strain that a concentrate brand requests.
Perhaps the biggest hurdle of all is passing the state’s required lab tests. Some states have stringent acceptable levels of contaminants that make it difficult to pass. Those that are unable to pass sometimes have a chance at remediation, but ultimately if they fail the material must be destroyed, which greatly affects total cannabis supply in the market.
Discerning consumers are affected by these minor and major fluctuations in quality and price. And as the industry matures, consumers will continue to expect better quality at a lower price. The ability of cultivators to provide the supply chain with the highest quality flower and trim at efficient prices dictates the performance of the entire market.
Changing Environment for Cultivators
If it wasn’t hard enough for growers to operate profitably in this industry, nature throws curveballs that cultivators have to catch and adapt to. 2020 brought widespread fires across a great part of the United States. Many growers had to evacuate their farms close to harvest time and some lost their crops to raging wildfires. Many others’ flower was polluted by the smoke from the fires. Whether or not this affected passing lab tests is yet to be determined.
One thing cannabis growers know well is how to adapt to change. And 2020 has demanded this of them. Covid-19 has dominated the business landscape across all industries. While not being federally legal, cannabis was still designated as Essential, meaning operators were allowed to continue working while many other businesses had to shut down.
Businesses had to adapt by decreasing the size of their crews and mandating mask wearing. For some it was a small impact but for others, working indoors, it affected their productivity and performance.
Data Collected in Cultivation
Cultivators have many variables they track to optimize cannabis quality and yields. Tracking all the variables manually and in isolated systems has previously been the go-to method. But these days, commercial grows are adopting digital systems that provide instant access to data for all stakeholders. Studying the data can reveal areas of opportunity for streamlining and optimizing results. Some common data points that are tracked and analyzed include:
– Physical data: lighting level and spectrum; soil type; pH fluctuations; nutritional requirements at various stages of growth; insect/pest presence; crop condition; yield estimates; and labor times on tasks, batches or strains.
– Environmental data: water quality (including run-off, leaching and residues); CO2 levels; temperature fluctuations; humidity levels; and energy balances for carbon footprint measurement.
– Commodity data: actual yields; qualitative attributes; trends in market demand for product types and genetics; and price analysis.
– Compliance Data: strains, plant type, plant count, product quantities, supply chain relationships, product packaged date.
When it comes to maintaining business during unprecedented environmental changes or simply refining processes on the farm, data is one of the best tools at any cultivators’ disposal. Visibility and transparency matter most to using data as a key resource.
Supply Data Visibility & Transparency: Why It Matters on the Farm
Most cannabis growers need tools for navigating complex supply chains and changing environments. One of the best resources at hand is data. As previously outlined, farms generate valuable data across operations. Creating visibility and transparency into those sets is essential for maintaining a business.
Data visibility is the ability for a business to easily access and work with its data regardless of its location. Transparency concerns stakeholders sharing data across their supply chain for internal and collaborative use.
Cultivators can better understand their farm operations and product movement from seed to sale with data visibility. When a grower and their partners create transparency, all stakeholders can plan supply strategically using shared data sets.
These practices help to ensure customer satisfaction, mainly through the monitoring of product quality, availability, and price. When data is either unused or siloed, it becomes challenging for farms to figure out how to optimize their harvests and measure the availability of their inventory downstream.
The types of data that are part of any cultivators’ operation are unique. Creating visibility and transparency into all the sets isn’t necessary. Instead, it’s better to strategize which data matters to whom and what shared metrics will make the most impact. Keep reading below for an approach to environmental and compliance data.
Leveraging Environmental & Compliance Data
Every grower is after greater yields. A never-ending puzzle to solve — how does one optimize their environmental conditions and inputs to produce the best quality at the highest yields? Space is constrained, so scaling up to produce more isn’t always an option.
At Trym, we help growers track their environmental conditions, a link that data to each batch of plants that they grow. This allows for analysis of each harvest and the opportunity to tweak and improve future harvest with hopes of increasing yields or optimizing for a certain cannabinoid profile.
Integrations with sensors like TrolMaster and Argus Controls allow for data collection of environmental conditions like temperature, humidity and Co2 in real time. Additional data points like VPD and soil moisture levels provide even more value and opportunity for crop optimization.
Compliance data is an excellent tool for leveraging inventory-related grow data both individually and in the context of supply chain relationships. Although METRC data isn’t immediately accessible through the platform, 3rd party options connect the data into an actionable resource.
Outspoke helps cultivators unlock and mobilize METRC inventory data. The platform brings compliance data into a dashboard with inventory-based insights and charts on supply levels, freshness, and product type. It’s also possible to share this data with other supply chain stakeholders.
When it comes to optimizing grow, scaling effectively, or refining supply chain relationships, environmental and compliance data are excellent metrics for creating impact.
METRC data is great for gaining an in-depth understanding of supply. Since the data is generally around measurements on product quantity, type, and quality, it’s suitable for sharing with downstream partners to enhance supply chain operations.
Tracking and analyzing environmental data is critical for consistent and optimal cannabis production. Tapping into climate and root zone data is the best way to understand what’s happening with your cannabis plants. Cannabis requires different conditions based on the stage of the plant’s life-cycle. And growers must be able to read the data and react to it to steer their plants towards success. Data is the answer and cultivators are becoming increasing savvy to advanced methods of data collection and analytics.
Data is the Future
With advancements in technology in both cannabis industry software and hardware, operators have access to an abundance of tools to optimize nearly every aspect of their businesses. More data is available than ever before and it can be an overwhelming task to track and understand it all. Choosing software to get better visibility into internal operations and consumer trends, will serve cannabis operators well and allow them to build successful and scalable businesses.
Co-authored by Ella Alpina and Matt Dell