How cannabis tracking systems fail to provide critical ERP features and functionality while ERP for cannabis can also provide compliance tracking.
Restrictive rules and continuing compliance mandates are a given for companies operating in the cannabis industry. Other challenges include larger companies driving prices down with economies of scale and operational efficiencies, and increased competition from new startups and digital disruptors as the taboo of marijuana wears off. Companies looking to scale and remain competitive must seek to improve controls as well as overall process effectiveness – using business management solutions including ERP to get there. Before the cannabis industry gained legitimacy, the only business management software available to companies were so-called Seed-to-Sale software solutions. And while Seed-to-Sale tracking systems are now touting themselves as enterprise-level business management solutions, they fall short in providing the capabilities required by the next generation of cannabis businesses. Just like every other established manufacturing and distribution enterprise, cannabis businesses need real ERP software to enable well-defined business processes, measure their effectiveness, and drive continuous improvement.
Current Industry Standard: Seed-to-Sale Software Tracking Software
Seed-to-Sale software systems track product through its growth lifecycle through the sale to the company’s customers (wholesale and retail). Its intent is to provide tracking and traceability for state regulatory compliance, inventory control, and security. The industry’s regulatory environment has driven a need to track all aspects of the product—including waste and extracted material—to comply with state laws to identify location and end-user sale information. Seed-to-Sale systems typically track changes using barcodes/labels, RFID, and even biometric scanning.
While Seed-to-Sale software certainly addresses compliance issues of product tracking common in the cannabis industry, it falls short in its ability to drive operational excellence throughout the rest of a company’s operations. It lacks the ability to track costs associated with the inventory of raw materials and finished goods. Without allocated costs, companies cannot effectively make decisions based on true product performance and market share. What products yield the best margins? How do you make purchasing decisions on items that affect your Costs of Goods Sold? Additionally, Seed-to-Sale fails to provide detailed tracking of production costs. Supply levels cannot be tracked, and overhead costs cannot be allocated for purposes of maintaining financials. If you were audited, how would you show you’ve appropriately recognized allocated costs and matched them with the sale of products? Are you able to track reorder points on supplies such as nutrients, soil, or packaging?
Furthermore, Seed-to-Sale software fails to combine this information with other operations within the company in an effective, cohesive manner. A simple export of data does not tie systems together effectively. Company departments must have a way to communicate and collaborate on real-time information. How are sales orders being fulfilled? How do operations managers analyze labor by function and gain insight into turnover issues? How does procurement forecast and purchase to satisfy demand?
The Solution: Enterprise Resource Planning
ERP refers to a software solution that allows an organization to use integrated applications to efficiently manage the business and its operations. If you think about all the various processes essential to running a business—accounting, manufacturing, inventory/warehouse management, sales/customer tracking, and human resource management—ERP looks to integrate all the various functions into one complete system to streamline and deliver information across the entire organization. With a shared database that supports multiple functional areas of a company, different divisions—for example, accounting and sales—can rely on the same information for their specific needs.
Beyond simply tracking product through its lifecycle—as Seed-to-Sale systems do—ERP builds efficiency through automating the operation of a company, rather than having separate systems and (undoubtedly numerous) spreadsheets that must be manually merged to generate reports. For example, sales orders automatically flow into the financial system for approval, order management departments are automatically notified on orders to fulfill in real time. The finance department can close the books faster by having shared information. ERP systems are created to be highly customizable both in workflow and user roles, so the systems can also ensure compliance and control with the company’s needs both internally and externally.
An Opportunity to Satisfy Industry Challenges for the Long Term
The legalization of this industry is heavily rooted in regulations and compliance. Moreover, licenses have taken on vertical integration of industry segments (e.g., retail dispensaries making their own products/brands). The need for accurate, controlled data is paramount. Companies looking for long-term competitive advantages and profitability can no longer utilize inefficient processes or larger companies will drive business away with better margins and more complete client relationship strategies. To ensure internal controls, state compliance, as well as overall operational efficiencies, companies must look to a single enterprise solution for ensured sustainable success.
Is Your Company Ready for ERP?
Do you have multiple programs that don’t or barely speak to each other, causing loads of manual work? Is accessing information difficult … even unreliable? Has closing your books or getting complete monthly financials become laborious and slow? Has forecasting become just guessing? Are inventory levels unreliable? Do you know what inventory you have and where it is? If this sounds like your company, then it may be time to look at implementing an ERP system. Silverware can help. We have over 30 years’ experience working with manufacturers and distributers to implement ERP solutions—and now leverage that experience and expertise to cannabis.
Alexander is a Product Manager for Silverware, Inc., with an extensive background in finance and accounting. He previously served as CFO for a cannabis investment company representing one of the largest cannabis businesses in the southwest, Reef Dispensaries. Questions for your cannabis business? Contact Alex at email@example.com.