Do You Know What Is Vertical Integration And How It Applies To The Cannabis Industry?

By: dryoiledible
Updated on: October 15, 2020 at 12:19 pm

Vertical integration is a business strategy for a company to own and control every aspect of it’s operation. It often includes suppliers, distributors and retail locations. It works best in cases where companies grow and expand by controlling their entire supply chain network.

For example, a manufacturer of CBD products, acquires or starts up an extraction company to provide it with raw materials needed for production; a distribution company to get the product to consumers and a retail store to sell the finished goods.They have integrated all the key aspects associated with manufacturing and selling their products. Done within the existing company, it’s referred to as vertical integration.These new entities are done to achieve better financial results for the company, and would have been previously outsourced to other companies. By bringing them in-house, companies not only get to control their production, they can control their pricing and
their customer experience.

The idea of controlling every aspect of the product is appealing, but there are many reasons why vertical integration can often be the downfall of many companies. Some executives are not the best managers and having parts of a business out-sourced to companies who understand and perform exceptionally well in a particular area is better
than doing a half-baked job in-house. Also, and very often, a company may grow too fast and mismanage the entire
operation. The best advice to cannabis companies thinking of owning and operating every part of their business is, ‘better to own 25% of a grapefruit than 100% of a grape’.

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