Gaps in quickly growing cannabis industry filled by tech startups
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As 2020 continues to bulldoze through our lives, at each turn carrying with it the promise of a headline even more shocking than the last, you may have found yourself looking for ways to cope and de-stress. If you’re one of the 38.4 million cannabis users in the US, you didn’t have to look too far. Throughout a tumultuous election season, raging wildfires around the world, and a pandemic that’s put a hard stop on any sense of normalcy we thought we were granted, weed has been a basic necessity for many. Back in March, while part of the country was gearing up for lockdown, Los Angeles deemed marijuana “essential” for its residents, allowing dispensaries with medical licenses to remain open. As we (begrudgingly) began to acquaint ourselves with a new normal of quarantine and social-distancing, marijuana stocks rose above the crashing S&P 500.
The landscape of marijuana policy in the US is on the upward trend, with multiple states jumping on the legalization bandwagon just this week. While the use, sale, and possession of marijuana products is still illegal federally, the coming days’ election results may shed some light on what the next four years of weed policy could look like. Although Biden has a history of punitive anti-drug policies that unfairly harmed (and continue to harm) black men and black communities, he claims that he was in the wrong. A Biden/Harris ticket brings hope of federal decriminalization of marijuana, legalization of medical use, and expungement of marijuana-related convictions. Harris, who sponsored the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act for federal legalization, falls left of Biden on the issue, but it’s not clear whether she will encourage him to pursue federal legalization if elected to office.
The exponentially increasing demand for and legalization of both medical and recreational marijuana products in the US make up the perfect formula for a booming industry. Revenue from the legal cannabis industry is expected to surpass $30 billion by 2025 and $73.6 billion by 2027. Along with any growing market come new opportunities to invest and capitalize, and the marijuana industry is no exception. While many are taking advantage of the market, there are certain challenges posed by the fragmented nature of the product’s legality in this country. Federal criminalization and state-by-state exceptions make finding unified solutions to industry needs quite difficult. With markets that are so new and unstable (in this case, because of legalization complexities), large established companies are more reluctant to get involved. This leaves room for niche startups to develop practical solutions and quickly gain a large market share.
Before taking a look at how tech startups are working to improve the cannabis supply chain, let’s go over some of the steps that take place in between Seed and Gummy. First step: cultivation. The marijuana growing market is one that’s already quite saturated, both by “large farms and backyard growers.” Weed can either be grown indoors (easier to control) or outdoors (cheaper), and the challenges that affect this stage of the supply chain are largely related to farming practices (pH imbalances, over/under-watering, etc.). As legislation continues to improve and demand rises, some predict that cultivation for the legal market will be outsourced to other countries with more suitable climates.
Once they’re full-grown, the plants are dried and ready for extraction. The level of extraction varies plant-to-plant depending on its intended use, and it’s typically a very tricky process due to the complex nature of cannabis. After extraction comes testing. All legal cannabis products are required to go through a testing process, the guidelines for which are set by (you guessed it) each state. The main things being tested in this stage are THC/CBD levels and presence of external contamination. Once tested, the plants are transformed into pre-rolls, oils, edibles and a whole lot more, and sent out for distribution. Under federal law, no marijuana products may be transported out of the state in which they were grown. That creates a unique opportunity for tech startups to learn the ins and outs of the states’ diverse supply chains and develop custom technical solutions. Known as “seed to sale” systems, SaaS companies like Canix are jumping at the opportunity. The first-place winner of a recent Techcrunch startup contest, Canix claims to eliminate “the frustrating busywork in compliance, inventory management and sales” for cannabis businesses. They do this by digitizing the mandatory tracking of each individual marijuana plant from growth to sale. Plant data lives in the Canix backend, allowing farmers to easily track movement and observe growth trends.
Whether you’re a tech startup or a vertically integrated supplier, if you’re in the cannabis business, 2020 might be your highest-performing year yet. As more and more people start benefitting and profiting from the plant, it’s important to remember that the status of weed in this country is not free from injustice. Cops are nearly four times as likely to arrest someone for marijuana possession if they’re black. There are 40,000 Americans in prison for marijuana-related offenses, and a disproportionately large amount of them are PoC.
Victims of the war on drugs, who were early pioneers of the industry and paved the way for today’s legal market, sit in prison with up to 20-year sentences for possession of marijuana. Meanwhile, weed is increasingly decriminalized and only one percent of dispensaries in the US is black-owned. In order to move forward in the industry, cannabis companies must acknowledge and work towards change. State and federal officials, along with key industry players, have a responsibility to expunge criminal records and enable PoC to take advantage of the booming market. The director of one group doing just that says:
“It’s morally wrong, and it’s fundamentally ethically wrong to allow one group of people to sell marijuana while other people are being punished for marijuana.”
As our country moves towards a more accepting outlook on marijuana, new legislation and opportunity must be accompanied by justice and reparations.
