Guest Column: Vertical Integration Benefits Outweigh Drawbacks

Becjy DeKeuster

Becky DeKeuster

By Becky DeKeuster

Vertical integration is terrible for our industry.

It leads to enormous burdens during the startup phase, creates mistrust between small farmers and the retail outlets that cannot accept their product, and limits client selection and strain diversity.

This was going to be the focus of my column, based on our experiences in a 100% vertically integrated market here in Maine. But a funny thing happened as I started to organize my thoughts for this piece: I realized that vertical integration is actually a pretty good model.

In recent years, several MMJ states have adopted laws that require vertical integration, forcing dispensaries to grow and process all or most of their own cannabis rather than buy it wholesale.

I initially intended to focus on all the perceived barriers to success resulting from vertical integration and the sheer folly of asking one company to simultaneously and instantly become an expert at a host of essentially unrelated tasks. Then, before you knew it, I’d have a definitive takedown of vertical integration that would strike fear (or reason) into the hearts of regulators nationwide.

But the more I wrote, the more began to see that the issues I was describing were not exclusive to medical cannabis – they are part and parcel of any regulatory model that demands vertical integration. These issues also are not insurmountable, especially to operators who understand the value of learning from those who have gone before them.

And, as I discovered while trying hard to write about how terrible vertical integration is, there are some exceptionally good reasons for states to adopt this model, at least in the early stages.

Brand Ownership and Controlling Your Own Destiny

As a single owner responsible for every facet of your business you have the opportunity to build a brand that reflects your personal values. You can operate in such a way that customers will come to believe in you and trust your product. You can direct the culture of your company, making the key decisions that will best take your business in the desired direction.

It also provides opportunity for personal and professional growth, helping to clarify when to take charge and when to delegate. Overcoming the challenges of learning all aspects of day-to-day operations, from cultivation through testing and to point of sale, can be immensely rewarding.

Building a Relationship With Clients

Interaction with clients is exciting and gratifying. Demonstrating your personal expertise puts clients at ease and develops trust in you and your product.

The result is that customers who aren’t simply satisfied, but who are sincerely happy to be working with you. Vertical integration allows you to track an SKU (stock keeping unit) from point of sale back through every step of the process to identify and eliminate problems in any phase. Through you, clients can meet any staffer involved with their meds from seed to sale.

Employee Engagement

Surround yourself with employees who exude a positive attitude and who value collegiality and a team first concept.

Since it’s unlikely that you’ll start out as an expert on all things cannabis, you will need a management team composed of authorities in all applicable areas. For starters, you’ll need an agricultural expert to oversee the cultivation of the plants, a scientist with expertise in the various methods of botanical extractions and a baker who can infuse the oils, waxes and other elements taken from the bulk plant materials into consumables. This provides you with total quality control and the shared experience and expertise of your staff will manifest itself in team bonding toward a shared goal.

You will also enjoy the flexibility to move employees laterally in the company if they show an interest and aptitude for a phase of the operation for which they were not originally hired. All staff will gain a deeper understanding of each aspect of the business.

Vertical integration is an appealing option for legislators as it offers one-stop regulation, easier tracking and tighter regulatory oversight at each point along the product’s life.

There may come a point where vertical integration ceases to be more beneficial than not for business owners and clients. Perhaps the VI model won’t survive legalization, in the same way that most wineries no longer grow their own grapes.

But if you are entering – or find yourself in – a vertically integrated market, know that it won’t be easy and it may not last; but it also won’t be terrible—and it will definitely be worthwhile.

Becky DeKeuster is director of community and education at Wellness Connection of Maine.

10 comments on “Guest Column: Vertical Integration Benefits Outweigh Drawbacks
  1. Cory Brown on

    I’m confused. The “benefits” you described don’t seem to me to outweigh the fact that mandated vertical integration obliterates the opportunities for small (read: not well funded) entrants in to the industry. And I cannot think of another industry where vertical integration is mandated. Alcohol, for example, is the exact opposite. A three tier system is mandated across the country. While I don’t necessarily agree with this either, it was established in order to prevent monopolistic practices, fraud and coercion.
    I may be missing something, but a mandated vertical model creates huge barriers to entry, and focuses power with only those with deep pockets, which seems anathema to what this industry is about.

    Reply
  2. Ray Schltz on

    I’m confused. The “benefits” you described don’t seem to me to outweigh the fact that mandated vertical integration obliterates the opportunities for small (read: not well funded) entrants in to the industry. And I cannot think of another industry where vertical integration is mandated. Alcohol, for example, is the exact opposite. A three tier system is mandated across the country. While I don’t necessarily agree with this either, it was established in order to prevent monopolistic practices, fraud and coercion.
    I agree: to restate: I may be missing something, but a mandated vertical model creates huge barriers to entry, and focuses power with only those with deep pockets, which seems anathema to what this industry is about.

    Reply
  3. adam kleyweg on

    This article reminds me of yahoo news. the title and the copy have almost 0 correlation. I mean did i miss something or is this author totally missing the point? she doesn’t even know which side of the fence she’s trying to be on. I’m assuming she’s trying to say that vertical integration isn’t bad but yet it won’t last. Cory nailed it on the head, VI, is only for companies with deep pockets, which if you live in CO and you’re trying to get into the market that will soon not have any VI, is next to impossible. Hedge fund millionaires are swooping in on every ancillary business and driving prices up for every average MJ grower or retailer, that VI, if continued, would only cause consolidation of businesses, disappearance of strain choices, and crush most of the original founders of the industry.

    Reply
  4. Steve W from Ford on

    Specious reasoning, at best. By the authors logic every baker should also own a chain of bread stores, every auto maker should, a’la Henry Ford, own rubber plantations, shipping companies, oil and gas drilling refining and distribution companies, every airline should own it’s own airports and Ma Bell should have never been broken up as they were so “wonderfully” vertically integrated! Ma bell had no real “need” for those new fangled cell phones as they just complicated an already great deal!
    Let the market decide. No need to have the states or localities dictate a particular way to do things but mandating that all retailers must also grow and manufacture is a recipe for stasis and inefficiency as has been shown in industry after industry. Farmers are not known to be great natural retailers or manufacturers so let each channel stand on it’s own. If I can grow, process and then also retail and market better than the next guy then let it happen but don’t force the farmer to be a retailer and processor as well as most likely all will suffer.

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  5. Clark_G on

    Great article, thanks for the honesty in describing your change of focus. Going vertical doesn’t have to be a barrier to market entry if you have a desirable product. Flowers, concentrates and edibles today have a very wide range of price, taste, effect and level of quality. There’s a lot of space to distinguish your brand if it’s worthy. If you’re a state rule maker and your goal is sweet tax revenue from high sales rather than overbearing, maybe punitive state control, a vertical model gives market players immense motivation to succeed at the outset. Total product and marketing control is one motivation. Getting retail pricing instead of wholesale on your work is another. In the once young car business Henry Ford’s factory took raw iron ore in one end and delivered Model T’s on the other end, pretty vertical. Most MMJ dispensaries are already growing what they sell in a vertical model so there’s less turmoil and disruption during transition to new regs (see Colorado implementation vs. Washington St.). Early vertical integration in new industries can be like an adrenaline shot as Colorado is showing and Washington is not.

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  6. Joan on

    Well said Cory! I totally agree. Seems like it has become all about lining the pockets of those who can afford the enormous cost of entry.

    Reply
  7. Yeti on

    Yet another moranic article from MBD ! Does anyone over there have any common sense? Let’s cut out all the small farmers and their amazing products, said no one ever!

    Dumb, dumb, dumb

    Reply
    • anneh on

      Please note: We invite Guest Columnists to share their opinions with our readership because we believe the cannabusiness community has the right to hear many points of view. As a developing industry, it’s critical for everyone involved to openly discuss their viewpoints and experiences to determine which is the best way forward. Name-calling isn’t necessarily helpful in this process.

      Reply
  8. DJS on

    Great article,more power to you Ms.DeKeuster.I have been to your stores in the past,and are a model,for other states,that will serve medical marijuana in the future.

    Reply

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