‘Collaborative Vertical Integration Has To Be The Way Forward For the European Cannabis Industry’

BACK in 2019 at a US industry conference while discussing cannabis business models a top executive from JP Morgan said ‘Gap do not grow their own cotton’.

That makes sense for that industry but as we are in the cannabis space – not retail clothing – we need a different approach.

For the last four years I have worked at the very cutting edge of a cannabis cultivation business in La Jagua del Ibirico, a stunning place literally in the middle of nowhere in Colombia. 

And, I can confirm from that first-hand experience that growing cannabis is indeed, very different to growing cotton!

‘Unmitigated Disaster’

The way cannabis develops will vary from country to country, location to location, strain to strain and whether it’s grown indoors, outdoors in the ground, or hydroponically. 

So cannabis companies should not be looking to the likes of Gap for inspiration – the business model the industry should focus on is seed-to-sale control – vertical integration. 

This starts with cultivation, then extraction, leading to the creation of an API, and on to the next step of manufacturing, then distribution.

There have been numerous examples of the North American industry forerunners identifying this as their preferred route.

But, to date, with a few exceptions, it has been nothing short of an unmitigated disaster.

We need to avoid the situation where gung-ho, highly-paid executives let their shareholders down by wasting millions of dollars in random buying sprees, without adequate due diligence and a long-term strategy.

Effectively, what we have witnessed is some businesses playing monopoly with shareholders money in what is akin to criminal behaviour.

There has to be a better way for the European industry to proceed and to my mind this could be achieved by like-minded individuals establishing solid working relationships across the supply chain with a view to eventual amalgamation.

Cannabis Medicines And CBD

As I have already indicated growing cannabis and then creating cannabis medicines from the plants can be quite a challenge.

The way all the cannabinoids, flavonoids and terpenes interact are key to understanding what will work best for what medical condition and this can only be done through extensive research.

Channelling medical cannabis along this route means we have to overcome more stringent entry barriers for our end products.

However, I would argue this is not necessarily the case in the CBD space. On the well-being side, with the novel food situation, then basically everybody’s product is the same.

I’m sure there are company’s out there that won’t like me saying this but other than all the other ingredients – the flavours, the smells, the other compounds and the creams and carriers, for example – the cannabis element is 99% exactly the same. It’s all CBD isolate. 

Collaboration Is Key

One of the challenges for European-domiciled businesses is that there are different rules and regulations for each country.

By working as a team towards the same common goal there is the opportunity to tap into each party’s expertise without the need to spend lots of money owning everything, and expanding too quickly with runaway costs. 

Industry partners needs to learn to work together so that each element is responsible for their part, then, as we grow and the revenue flows from each vertical we can then look at how each element could potentially merge to become one. 

This can only really happen when each vertical is profitable and will avoid the situation we have just described where there’s a lot of money being spent sporadically with no profits being made.

You can’t buy your way out of problems – what you’ve got to do is work hard to create a solid foundation, move on to the next piece, build it up, and so on.

Once the revenues start to flow then that is the time to look for further consolidation and collaboration through buy-outs or mergers.

The only way this industry is going to grow is solid collaboration. By solid collaboration I mean that elements work together cohesively as a team; as a unit moving towards the same common goal, one that creates real solid businesses based on solid standards and foundations. 

Carl Haffner is a Co-Founder of a vertically-integrated cannabis business which supplies all sectors from the medicinal to wellness and cosmeceutical. 

Carl has now set up his own Cannabis Consultancy to support brands though to growers and anyone involved in the ever-shifting industry.