Consultant & Coach to Cannabis Firms | Speaker | Publisher of the Cannabis Management Review at mitchellosak.substack.com
Cannabis Firms: What’s the easiest way to set fire to your cash and screw your operations? Be really bad at procuring big ticket items. Cannabis companies are infamous for blowing money, particularly early in their life or right after large cash infusions. The examples are legion: over building facilities, installing enterprise-wide IT systems that weren’t fit for purpose and; buying equipment that never ends up being used. Anyone with a front row seat would have their share of horror stories. Moreover, it’s not just about wasting money. Buying the wrong stuff can compromise your operations, introduce complexity and end up being a major distraction. Smart procurement is a strategic necessity today. Capital is scarce and expensive; the complexity and pace of business has never been higher and; institutional memory and talent is often lacking. Causes of the profligacy - Many enterprises don’t have a procurement strategy (did they know they needed one?) not to mention proper controls, budgets, evaluation tools and managerial oversight (when and where it matters). - Procuring complex kit like IT can be hard when you are under-resourced and inexperienced. Canvass many cannabis businesses right now and you will not find a surfeit of commercially minded, financially literate people. - A lack of discipline. It’s easy to be a spendthrift when your bank account is full of cash and ‘speed’ is the corporate mantra. Employees also tend to neglect poorly-enforced procurement rules. Becoming a good buyer is about being cost effective, ensuring product & service availability and choosing the right products & vendors. The solution Addressing this competency gap necessitates a two-part fix. Ideally, your fix will be part of a procurement strategy and rule book. > Apply common sense rules 1. For big CapEx projects, insist on multiple vendors with client references. 2. Stipulate that purchased systems adhere to industry standards. 3. Reduce the number of vendors to capture volume discounts, secure better terms and develop partnerships. Never single source any large purchase so you are beholden to one company. 4. Don’t scrimp on maintenance or support. 5. Lock down custom builds so they don’t deviate at the last minute or during the implementation. > Institutionalize 6. Craft, codify and implement procurement rules - and make sure they are enforced. 7. Insist on quoting and negotiating transparency on major projects. 8. Require multi-department and senior level sign off (including Boards) on big purchases. I can help your firm go on a CapEx diet while you still build operational muscle mass and delight your customers. 🔔 Hit that follow bell to always get my unique, impactful content #cannabisindustry #MSOS #LPS #procurement #CapEx #cannabis #buying #operations
Craig Levin, MBA
7mo
I had to lookup profligacy. The definition included a picture of a well known Canadian LP CEO
Marc Emmelmann
7mo
👏👏👏👏👏
You’re speaking my language, Mitchell! Optimization starts with planing and continues with measurement and critical self improvement mechanisms for the entire future of the enterprise.
Matt davies
7mo
Flood the fields !
Keith Bao
7mo
Your tips are especially true when it comes to procuring materials for finished products which including packaging, supplies and hardware. The partnerships required to succeed in the space must be examined and tested. If you don't have preroll cones or vape hardware because you don't have a reliable vendor that you work with and plan with you, good bye to your business! Going straight to China (where they don't understand cannabis and it's illegal) to save a few points WILL screw your operations at some point. Find trusted professional folks and test test test them, and having backups is smart business.
Austin Sims
7mo
Inexperience from the "Legacy" boys who had never seen that much cash and were short on critical thinking skills, coupled with greedy "consultants" just trying to sell the biggest things their firms could make. Tale as old as time.
Matt davies
7mo
oops , thought twas to replace irradiation ?
Kieve Huffman
7mo
Always bringing the common sense to the industry Mitchell Osak!
Seth Yakatan
7mo
Can't argue with that common sense approach.... Mitchell Osak
Max Rudsten | Chief Revenue Officer & Managing Partner | Entrepreneur & Investor | Specializing in Revenue Growth and Strategic Partnerships | Ex-JPMorgan & Eventbrite
7moWhere this also tends to go sideways is when management teams forecast breakeven points on capex investments in machine automation based on unrealistic throughput. I can't tell you the number of operations I've toured that invested bango bucks into machine automation with no base business or any semblance of a robust BD pipeline. If we build it, they will come they said! Any capex investment needs to be aligned with a conservative throughput forecast based on actual business, not fantasy business. One thing we're highly considering is an investment in our own co-generation. Based on energy costs, we should see breakeven in 1 year. This type of investment is way easier to quantify than procurement based on hypothetical throughput. Great post as usual Mitchell Osak. Would supply chain nerds tune into our podcast?!