From the Cannabis Diaries: Mind the Technology Gap
Updated: Jul 11, 2019
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Cannabis industry watchers assume that when the giants start moving aggressively,
the changes will be seismic. Private equity and venture capital are moving into the
space, along with internal M&A teams. Smaller providers will need to grow and scale
without losing their focus on quality.
As the regulatory fog dissipates and the green gold rush attracts corporate players,
only the resilient will scale, survive, and thrive. Make no mistake. There will be
blood. Amazon. CVS. Target. People often confuse media coverage or age with
resilience, particularly when it comes to a business. Yet age has little to do with
resilience or success.
Years ago, I worked for a leading financial services provider. Our mobile payments solution had iOS and Android apps available. Corporate IT made us carry BlackBerries to access our corporate email.
Trade show demonstrations had to be carefully orchestrated to maintain our cover as trustworthy innovators. Startups ran circles around us as we were adapting to regulatory changes and evolving standards while developing new products and clashing with corporate compliance mandates.
This pressure to innovate, grow, and simultaneously operate, without losing quality, will be familiar for the cannabis industry. This fall, I served as the interim CIO for one of the world’s largest publicly traded cannabis firms.
During this time, I saw familiar patterns, problems, and solutions from projects past of entities in other industries prepping for a liquidity event. When we started the engagement, we found that past acquisitions used different systems and technology footprints. IT outages hurt the business. Projects were underperforming. Our network and infrastructure were unreliable. Technology would either enable business growth or drag it down, kicking and screaming. 5 months later, the job remains unfinished, but the transformation is well underway.
Larger, more established players coming into the field frequently struggle with acquisition integration, legacy technology platforms, and high technology operating costs unfazed by trends like the cloud, blockchain, and AI. Cannabis businesses have a unique opportunity to build the habits and disciplines to make technology a competitive advantage before bad habits calcify or legacy mindsets take root.
Not sure where to begin?
Here are some practical suggestions for identifying red flags early, and driving technology players, practices, and products to scale and grow your business, in cannabis or otherwise:
1. Start with an objective set of measures.
Dispensaries, supply and delivery providers, cultivators, manufacturers, and investors all measure success and failure. In addition to high level profit and loss metrics, cannabis companies need to measure metrics specific to their business. For example:
Are same store sales growing or falling?
How do I retain key talent?
How do I replicate the success of my best salespeople?
Are delivery schedules clear, safe, and efficient?
Can retailers order online without fear of stock outs?
Are aging products sold first or do they expire in quarantine?
How much should I grow?
How do I make track and trace easy and efficient?
How can I increase my yield without losing quality?
How much should I make?
How do I ensure that I maintain my license?
How do I ensure that inventory is accurate and reliable?
Compliance and Risk:
Are my licenses managed proactively?
How much effort is required to stay compliant with regulatory requirements?
Are we ready for new markets or potential regulatory changes?
The questions above are all answered either instinct and guile, or objectively and accurately via data and standard playbooks. These questions are not unique to the cannabis industry, though there are some key differences, e.g., safety and security.
Technology is either making these questions easier to answer or it is obscuring the truth. Bottom line, a Customer Relationship Management (CRM) tool like Salesforce is not why your salespeople are succeeding or failing, though Salesforce can accelerate results, positive or negative.
Consulting giants and technology thought leaders such as Gartner rate technology resilience or maturity on a 1 – 5 scale. Simply put, a 1 (Unknown) means that processes are highly manual and difficult to repeat. A 5 (Automated) means that processes and tasks are highly automated and consistent across the organization.
Consider this comparison. Every professional sports team has a culture and playbook, but those that win consistently thrive despite personnel turnover, innovations to the game, and rule changes. Resilient organizations do not miss a beat because they are consistent with a playbook, measure results, and automate commodity tasks.
As you rise up the maturity scale, your business should experience benefits and improvements to core metrics. Beyond profit & loss or maturity, use the metrics that you use to manage your people, sites, products, and services.
With your gut, you can quickly compare your IT experience to the 1 – 5 scale. Are we working off of a standard? Are the networks and printers up and running when you move into a new office or expand your cultivation facilities? Are there clear lines of communication and escalation for when you need help or equipment? Is every unexpected event met with unflappable, efficient resolve?
If your answer is no, you are a Level 1 (Unknown) or Level 2 (Inconsistent) across your organization. While an individual warehouse, grow facility, or retail location may achieve a higher score, a viable business can quantify, repeat, and automate success. Willpower is not a sustainable resource for a billion-dollar company in a trillion-dollar industry.
Rather than being discouraged, cannabis organizations should see these relatively low resilience scores as an opportunity. The little-known secret, as illustrated above with the financial services example, is that most of the Fortune 500 struggle with inconsistency from their technology functions. Level 2 IT functions drag down overall business performance. While the market is still growing, cannabis businesses can build and maintain an efficient, reliable, innovative IT function.
2. Focus your technology resources on clear business priorities
Once you know your current state, either through a formal assessment or an informal gut check, prepare a technology plan. Start with your business plan. New hires, new facilities, products, and functions all have a technology or digital component. Build and align the technology plan to focus on the next six to twelve months of your business. 3 - 5-year technology roadmaps are of limited value, given the pace of change in technology and cannabis.
Establish 10 priorities at a time, breaking them into High, Medium, and Low priorities at that moment. The cannabis industry is fluid, given the current regulatory environment in the United States, but uncertainty and risk are common challenges across all industries. Focus on the immediate. The warehouse needs to fulfill orders faster and more accurately. For example, you need to establish an online ordering solution for retailers and customers. Shipments need to be timed so that we can pick up and deliver without waiting for product or payment unnecessarily. Standardize email and document storage solutions for efficiency. Establish a company wide mobile policy and carrier discount to trim telecom expenses.
It is essential to understand how people work, what measures they use to track success, and the tools that they use in order for technology to provide value. Knowing the desired outcome, e.g., time delivery and pickup notifications to be accurate within 30 minutes, is a strong starting point.
If the technology team knows that the drivers typically make a phone call when they are approximately 30 minutes away and the specifics of what prompts a driver and a customer, they can secure, automate, and simplify the process. Know the flow, even if it is a photograph of a whiteboard or notes from a ride along.
At a telecommunications provider, we were trying to figure out why the field services team refused to use our troubleshooting application. After spending a day in the van, we saw that the wireless cards in their Toughbooks were unreliable. Switching carriers solved the connectivity problem. Drivers began using the application. A $60M problem due to wasted truck rolls became a $6M problem.
Setting and maintaining focus is key to achieving results, instead of creating a strategic, high level to do list that never moves. From the 10 priorities, assign 2 – 3 in 2 – 4 week increments. Remember that support and operations will consume roughly half of your IT resource capacity in most organizations. You have roughly 20 hours a week, in optimal conditions, for enhancement and improvement work from a technology resource.
In organizations with one or two IT staff, they may be able to handle only one project at a time. These situations are incredibly dangerous to long term business viability. Software providers and vendors will proceed with design and build work in parallel to your internal IT team, leaving them out of the loop. This often leads to more complex, fragile architecture, further reducing the customer experience, breaking business process, and increasing cost.
HR had commissioned a project to implement an employee benefits and payroll portal. Canadian and US payroll would run through the system, followed by additional HR processes such as hiring, performance management, training, and compliance.
Six weeks before the first payroll run, the vendor dropped support for US payroll. I began to sniff around. Requirements did not exist. While I was concerned, I kept an eye on their progress. Three weeks before the first payroll run, the vendor could not provide testing scripts or metrics to demonstrate that payroll processes would be better, not worse. I pulled the plug a week later after I was told to “not worry because the new system is in the cloud.” No.
It was a painful lesson. Business leaders, lacking an internal resource for a second opinion, were doing their best, but the vendor was clearly taking advantage of the situation. A business without clear requirements, clear process metrics and flows that will get better with a tool (not worse), and a set business case to justify the investment is ripe for the picking.
Cannabis organizations that have grown via acquisition typically have an inconsistent technology footprint. Technology resources that are used to working at a particular site to support the business may now find themselves covering multiple sites or a rapidly expanding workforce. Securing their devices, managing their networks, ensuring that accounts are configured, and that core business functions and processes are innovating often stretches resources beyond their capacity.
This creates a vicious cycle. The list of technology needs continues to expand while resource capacity remains largely the same. Leaders grow frustrated with the perceived (or actual) lack of progress and pressure mounts. Trust is broken and business plans and actions are established without technology involvement. Next thing you know, there are technology implementations that significantly impact the business without a coordinated plan.
3. Focus on firefighting, then fire prevention.
Customer issues consistently distract IT teams and usually come in the form of urgent emails, phone calls, or panicked team members standing in the doorway. Once the fire is extinguished, the IT resource sorts through the ashes in an attempt to figure out what happened. Some educated guesses are made, along with well-intended commitments to stop the fire from happening again. Yet nothing changes.
Cannabis organizations are familiar with these experiences, but they should take comfort in the fact that these scenarios are drawn from a number of experiences at well regarded, long standing members of the Fortune 500. Smaller organizations have the opportunity to avoid building bloated technology functions that only focus on firefighting.
There are third party organizations that can dramatically boost a Level 2 (Inconsistent) organization. There is no magic bullet, to be clear. However, cybersecurity insurance providers, network management, help desk support organizations, and cloud services are potential solutions to core business problems in cannabis. Kettle does not sell these services, but we help our clients discern when to build v. buy and how to choose wisely.
At the beginning of our engagement, legacy contracts with help desk and IT hosting providers were in place. These contracts were not detailed. We were paying substantial monthly fees for no guaranteed levels of support. To make matters worse, their maintenance activity often broke networks and systems.
We started contract negotiations to pick a new provider, using a competitive bidding process, that could support facilities in Canada and the US. We demanded clear resolution times, rather than “We’re working on it” response times. Simply put, we had outgrown the legacy providers.
Set clear guidelines for technology Incident Management and Problem Management, i.e., firefighting and fire prevention. Establish a consistent, clear point of contact for employees to make requests and report outages. This will be a near full time job 24 x 7, making it a prime opportunity to partner with a third party who commits to contractual resolution times, feedback reviews, and performance-based compensation. Do not sign an agreement without these commitments in writing.
Nailing down these fundamentals will move you further along the resilience curve and maximize ROI faster than larger established players that are trying to be nimble. Furthermore, these are the building blocks for more advanced efforts. Focus your internal technology resources on solutions that will drive revenue and increase margins. E.g., AI powered warehouses, online sales channels, grow analytics, and social media engagement. Clear expectations, procedures, and work assignments will allow you to grow your business using technology as an engine for good.
We are in an exciting era of innovation driven by digital transformation at speed, and every industry will be impacted – some in similar ways, and others in ways that are unique to their domain. Players in the Cannabis space are uniquely positioned to leverage the intersection of policy change with business transformation together with an active M&A space.
As long as you ‘mind the gap’ and address these three key areas that are empirically proven to be of critical importance. These fundamentals are key to attaining success and maintaining it in the long run. The vast majority of cannabis businesses want to earn a profit without losing sight of the wellness and social justice aspects of the industry. You and your business will be in great shape to use technology as the board to ride a wave of change that promises to be exciting, pioneering and rewarding.