If you’re in the process of setting up a marijuana business in Michigan, or you have designs on creating a new company, you may be exploring your options. If you’ve done research into different business models, it’s likely that you have come across vertical integration. Within the sphere of the marijuana industry, vertical integration usually involves both cultivating and dispensing, but is it a good idea, and does it represent the right approach for your new venture?
What Exactly is Vertical Integration?
Vertical integration is a business term that is used to describe a company controlling different parts of the supply chain. With reference to a cannabis business, this means taking charge of both growing and manufacturing and distributing and dispensing. In some cases, state laws and restrictions play an influential role in determining whether or not vertical integration is a viable option. In New Mexico, for example, cannabis companies must be vertically integrated, but most states, including Michigan, allow it without stipulating that this model must be enforced. If you have a choice, and the way you work isn’t governed by state laws, you may be wondering if vertical integration is the way to go. As with most questions, there is no clear cut answer, and it’s wise to explore the pros and cons and apply them to your individual situation before you make a decision.
The Advantages of Vertical Integration
One of the most beneficial aspects of vertical integration for a marijuana business is being able to respond to and capitalize on emerging trends. If you see that a specific product is selling well, for example, you can relay this information back to the growers, increasing the yield and boosting your profits. This can be done a lot faster when you have control over the supply chain. You also have tighter regulation of scalability, and there’s some evidence to suggest that vertically-integrated businesses are more appealing to the public. Cost is also an essential factor for anyone who runs any kind of company. Vertical integration can help to lower running costs and reduce expenses by increasing efficiency. Another advantage of vertical integration is quality control. If you know exactly what is going on at every stage, you’ll know that you’re producing and providing a high-quality product.
Vertical integration can work well for many cannabis business owners, but there are some downsides. One of the most significant disadvantages, particularly for new business owners, is the outlay. If you’re implementing and overseeing every stage of the production process, this could cost you a lot more in the fledgling stages of establishing your business. Another potential side-effect of vertical integration is losing focus. If you specialize in growing or selling, this gives you one area to concentrate on, rather than an entire end to end process, and it may be easier to meet standards and deliver the desired results.
Is Vertical Integration the Right Approach?
If you’re thinking of setting up a new Michigan marijuana business, there are many things to think about, including the business model you wish to adopt. Vertical integration offers several benefits, but there are also drawbacks. Some people prefer to be involved in every step of the process and this option works for them, but there are others who have enjoyed great success by specializing in one area. There has to be a degree of personal input, but it’s also wise to explore the pros and cons and to consider how they are relevant to you. Think about your business objectives, your USPs, and the way you want to make profits. It’s also advisable to consider the initial outlay and to research the market to get a better understanding of what customers want and what kinds of factors influence their decisions. Costs may be lower in the long-run, but if you have to establish a supply chain and apply for multiple licenses, you’re going to incur significant charges right at the start of your business journey. Time is also a factor for some budding entrepreneurs. Are you going to have the time to manage different facilities and components, and if not, can you afford to put a team together to do this?
Vertical integration is an option for many business owners looking to tap into the growing popularity and accessibility of medical marijuana. There are advantages, including increased efficiency, lower running costs and improved quality control, but there are also disadvantages. Running an entire operation can be costly at the start of the journey, and often, it’s a lot more difficult to get every step of the process right. If you’re looking into opening a marijuana business, it’s always wise to consider all the options on the table before you make a final call.