Reflections on 2021 in the Cannabis Industry

As 2022 gets underway and everyone is making their way back to work for a new year, I thought I would take a moment to reflect on some key aspects of the Cannabis industry from 2021.

At Federal Level:

Once again Washington failed to make any major headway in advancing the cannabis industry. Optimism was high that at least the (Secure And Fair Enforcement) SAFE banking act would finally get passed. This would allow banks to work with State legal, cannabis companies, without fear of penalty and would open up better financial services to the industry. The core of this legislation has passed the house no less then 3 times already. When it was added into the National Defense Authorization Act (NDAA) in September it was expected to finally become a reality, only to be removed in the final stages as part of the inevitable “horse trading” that goes along with these pieces of legislation.

The Marijuana Opportunity Reinvestment and Expungement (MORE) Act is a bill which was set to legalize Cannabis at the federal level which also passed through the House. This did not make it to the Senate where Leader Chuck Schumer (D-NY) is working on his own proposal to legalize that has not yet been published.

The most surprising development (for me at least) was to see a Republican sponsored piece of legislation to legalize Cannabis from Nancy Mace (R-SC). The States Reform Act had a number of key aspects of the MORE Act but was more tempered in its taxation and allocation of resources from this tax revenue.

Overall, whilst no legislation was passed, momentum continues to build on both sides of the political divide, to move towards the legalization of Cannabis in the US.

At State Level:

Currently the Cannabis industry is a State level story and despite a lack of progress at the Federal level, the States continue to increasingly provide access to patients and recreational consumers. Connecticut, New Mexico, New York and Virginia added to the list of states where marijuana is now legal.??However, some of the other states that seemed favorable, like Delaware, Maryland, Pennsylvania and Rhode Island, made no progress in 2021.

Products:

Possibly the biggest trend for products in the cannabis industry in 2021 was the increase in the beverage options. Either as Seltzers, drops or other beverage additives, this category is growing quickly and is seen as a format that will appeal to new consumers. In addition to the growth in beverage, we saw that whole flower products maintained a leading share of the market in most states and the battle to grow the best has led to many new strains being launched. Cross breading of genetics to get the best characteristics of cannabinoids and terpenes has not only led to higher THC percentages but also some great new names such as “Fatso” and “Hans Solo Burger”!

Rare Cannabinoids also started to become more available as companies find ways to commercially extract or create these more trace elements of the plant. Cannabinol (CBN) which is highly associated with help for sleep and relaxation, was probably the most visible new cannabinoid on the market and in products.

Information Technology:

There has been some major investment in Cannabis technology, the biggest news being Dutchie’s purchase of Leaf Logix and Greenbits. This was followed by raising $350M at a valuation of $3.75Bn. With this they provide not only ecommerce but full seed to sale and Point of Sale (POS) functionality.

Akerna has also been on the acquisition trail. They recently acquired 365 Cannabis to expand their platform’s footprint beyond Seed to Sale. This ERP solution, which is built on Microsoft Dynamics 365 platform, should allow Akerna to provide a more comprehensive business platform that will integrate financial and inventory transactions with the compliance and tracking needs of the industry.

Potentially the most significant news is the entry of SAP in a more meaningful way into the Cannabis space. Partnering with specific implementation partners, they are building a cannabis industry blueprint on their S/4 Hana platform. As cannabis becomes more mainstream it seems inevitable that the larger enterprise platforms are going to see the potential growth for them in the cannabis space. It may only be a question of time, or Federal Legalization that sees the companies which have refused to engage with cannabis, realize the potential as one of the fastest growing and most open for digital transformation and software revenue.

Summary:

?In many ways 2021 was a challenging year for the Cannabis industry. As with others, we struggled with the impacts of COVID but also the challenging regulatory environment in which we operate. Whilst not much actually happened at the Federal level, momentum is clearly moving towards legalization. States continue to expand access and the industry continues to innovate with products, both in terms of formats and ingredients.

The numbers for the year in terms of cannabis revenue are not yet published. However, many of the largest public companies are reporting year on year growth figures that companies in other sectors can only dream of. The future looks bright!

However, as a CIO, it is interesting to see how the battle for the best cannabis "technology stack" unfolds. Will it be dominated by big cannabis Tech like Dutchie? Will ERP become more important as more companies become public and need tight financial and audit controls? Will the big enterprise players make a concerted effort to “get in early” and help grow with these companies? Alternatively, will it be an innovative collection of smaller niche Software companies, cleverly integrated in the cloud, that provide a winning digital platform? I have my suspicions about this, but making sure we do what is best for our patients and consumers is my main focus in 2022!