{"id":180,"date":"2018-04-28T13:09:00","date_gmt":"2018-04-28T11:09:00","guid":{"rendered":"https:\/\/www.dazzlepop.net\/site\/?p=180"},"modified":"2018-04-28T13:09:00","modified_gmt":"2018-04-28T11:09:00","slug":"the-2-strategies-every-entrepreneur-can-learn-from-cannabis-startups","status":"publish","type":"post","link":"https:\/\/www.dazzlepop.net\/site\/the-2-strategies-every-entrepreneur-can-learn-from-cannabis-startups\/","title":{"rendered":"The 2 Strategies Every Entrepreneur Can Learn From Cannabis Startups"},"content":{"rendered":"
<\/div>

Growth can come from two strategies: vertical integration and horizontal acquisition. Recent multimillion-dollar deals in the cannabis industry show when to use each.<\/h2>\n
\n

It’s April 20th, 4\/20, the date\u00a0some celebrate as “Marijuana Day.” Open any newspaper or news website today\u00a0and you’re\u00a0sure to see an announcement about any number of recent\u00a0mergers<\/a>\u00a0in the cannabis industry.<\/p>\n

The\u00a0cannabis industry<\/a>\u00a0has probably seen more mergers recently than yours has, regardless of what industry you’re in.What’s driving this\u00a0level of mergers and acquisitions in the cannabis sector? One word: growth.<\/p>\n

At their core,\u00a0all\u00a021st century tech startups<\/a>\u00a0are fundamentally concerned with growth. From Y Combinator’s\u00a0Paul Graham<\/a>\u00a0to serial-entrepreneur\u00a0Steve Blank<\/a>\u00a0to “lean startup” proponent\u00a0Eric Ries<\/a>, the consensus is clear:\u00a0Startups must grow<\/a>\u00a0in order to not only survive but to thrive.<\/p>\n

Boosting customer numbers, developing economies of scale, capturing greater market share, increasing revenues and profits, and expanding into new markets is the focus of many founders. Ultimately, if a startup doesn’t grow then it doesn’t survive.<\/p>\n

The recent flurry of cannabis transactions is likely due to the time constraint put on building out new capacities. So instead of building, many in the industry are choosing buying.<\/p>\n

What do you do, though, when your startup stagnates and your\u00a0growth slows?\u00a0Here are\u00a0two proven strategies from the cannabis industry that you can use to push past plateaus and expand your business.\u00a0While these acquisition paths are not unique to the cannabis industry, the plethora of recent marijuana mergers allows us to plainly view both paths in parallel.<\/p>\n

1. Go horizontal.<\/h2>\n

When a company wishes to grow through a\u00a0horizontal acquisition<\/a>,\u00a0it is looking to acquire a similar company in the same industry.\u00a0The buyer may be seeking to increase its size, to diversify its product offerings or services, to achieve economies of scale, to reduce competition, or even to gain access to new customers or markets.<\/p>\n

Some recent examples of a horizontal integration in the cannabis sector are Aurora Cannabis’s\u00a0acquisition of CanniMed Therapeutics and Canopy Growth’s acquisition of Mettrum. Both of these deals involved the combination of\u00a0ventures with similar business models (they’re all commercial producers of marijuana).<\/p>\n

2. Go vertical.<\/h2>\n

A company looking to achieve vertical integration is seeking to acquire a company that operates in the production process of the same industry. It may be aiming\u00a0to strengthen its supply chain, reduce production costs, capture upstream or downstream profits, or access new distribution channels.<\/p>\n

To do this, one company acquires another company that is either before or after it in the supply chain process. Let’s look at MPX Bioceutical’s recent acquisition of Canveda. (Full disclosure:\u00a0as a professional investor, I own\u00a0minority equity interests in both companies.)<\/p>\n

MPX runs a retail distribution model–it sells what others make–and Canveda is a licensed producer. By combining, MPX will be able to distribute its own homemade brand, allowing it\u00a0to gain the margins associated with production and sales, while\u00a0Canveda will have\u00a0the MPX distribution network to sell through.<\/p>\n

The goal of vertical integration\u00a0is\u00a0greater profit potential through better control over operations. The strategy not only allows a company to reduce costs across various parts of production–such as transportation, transactions, and business-to-business marketing–but also\u00a0ensures tighter quality control\u00a0and\u00a0a better\u00a0information flow across the supply chain.<\/p>\n

Vertical integration often allows a company to reclaim\u00a0margins by stripping out the middleman, sometimes taking the form of wholesalers and retailers.\u00a0Taking ownership of\u00a0more\u00a0of the supply chain can provide added flexibility for the buyer. This can be important in times of challenging market conditions, where margins are more likely come under pressure.<\/p>\n

How to apply this to your growth:<\/h2>\n

Vertical Integration<\/strong>.\u00a0Buying a supplier or a distributor means you’ll own more of the value chain, which allows you to be more efficient and lower costs, thus growing\u00a0your profits. You’ll also add the revenue generated by those newly acquired elements. Follow this strategy if you want the security and agility associated with owning more of\u00a0your venture’s\u00a0supply chain.<\/p>\n

Horizontal Consolidation<\/strong>.\u00a0You should\u00a0buy competitors when you need to increase capacity and\u00a0reduce competition, and most of all if you want to leverage your proprietary elements (like your brand).<\/p>\n

The cannabis industry is still in its infancy, with players jockeying for market share.\u00a0By reviewing recent\u00a0multimillion-dollar transactions in the sector, you can learn when to deploy vertical integration and when to follow a horizontal acquisition strategy with your business.<\/p>\n<\/div>\n