Capital: A Barrier to Vertical Integration in the Cannabis Industry

Capital: A Barrier to Vertical Integration in the Cannabis Industry

Capital can get spread too thin and banking rules can make working capital more difficult to access in the Cannabis Industry. You may be aware of SAAS (software-as-a-service) that has transformed the business world and helped reduce the upfront capital investment in software design and hardware. With the rise of vertical integration in Cannabis (mandated in some states) the question arises, ‘How can I raise the capital and expertise required to compete within all levels of the cannabis supply chain’? One possible solution which greatly reduces capital requirements and leverages an expert partner is ‘extraction-as-a-service’.

Let’s start with what vertical integration means in the context of cannabis.  The 4 stages of Vertical Integration in cannabis are often referred to as ‘seed to sale’, including: 

1) Cultivation 

2) Extraction 

3) Product manufacturing 

4) Retail distribution 

To be considered vertically integrated a business needs to own every stage within the supply chain, including for example, growing the biomass, extracting the THC/CBD, formulating and packaging a product, such as gummies, and ensuring the product is distributed legally through properly managed dispensaries according to state rules.  

In some states regulators suggest that vertical integration ensures better oversight and control throughout the supply chain and reduces the risk of unregulated products entering the supply chain at any point.  Yet, regulators in other states ban vertical integration as it reduces competition through barriers to entry and gives a smaller number of industry players too much control. Regardless, vertical integration requirements will raise the cost and complexity of market entry.  

Whether you are a large multi-state operator or a smaller start-up, choosing extraction-as-a-service and bringing in an expert partner to manage the entire extraction process will reduce the cost of capital for extraction and the complexity of operation.  You will receive a fully-tested, fully-managed pharma-grade mobile lab solution into your facility, so that you can focus your capital and expertise on what you do best – cultivation, product formulation or distribution.

To find our more about how extractX partners with you to remove the barriers to vertical integration, click here.

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