Open Up Your Cannabis Innovation
Many LPs and MSOs expend a significant amount of capital, time and resources on product innovation. The results of these efforts, however, is sobering.
Most innovations die on the financial and market vine. Furthermore, R&D is an expensive activity that produces unintended consequences such as higher inventory levels, operational complexity and brand confusion.
Cannabis leaders, however, should keep things in perspective: In many industries, upwards of 90% of all product innovations fail to deliver on their strategic and financial objectives. For regulated sectors like cannabis, product innovation may be one of the only ways to drive brand differentiation, align with consumer trends and generate above industry margins.
Clearly, many firms should not abandon innovation as a strategy. Instead, they should retool their innovation process – the finding, commercializing and marketing of great, new ideas.
There are good and bad ways to innovate. Instead of rolling the dice on internal R&D, prudent companies could set up a corporate venture capital (CVC) arm and find innovation outside the business.
Popular in other sectors, a CVC arm would invest in third-party innovations (e.g., products, patents or tech) and seek to leverage or monetize them in some fashion. Walk the floor of #MJBizCon; you'll see plenty of cool innovations searching for capital or an operational partner.
An ‘open innovation’ approach has many benefits:
1. Minimize the downside
De-risk the cost of R&D by sharing the financial expense with partners;
2. Break out of your silo
Tap into the global cannabis R&D and venture capital ecosystem;
3. Don’t put all your innovation eggs in one basket
Increase potential gains by getting smaller pieces of more innovations;
4. Improve your Return on Assets
Use your firm's capabilities and market access (instead of scarce capita) as your venture investment.
BAT’s recent follow-on investment in Organigram (via their venture arm) is a good example of a CVC deal.
A CVC group operates in many ways like a typical venture capital firm. An internal team identifies, evaluates and invests in breakthrough start-ups, products or technologies through a variety of structures such as joint ventures, seed investments, co-branded products or licensing deals.
Running a CVC group, however, isn’t a no-brainer. It requires financial skills, resources, and governance & reporting mechanisms that may not be found in most MSOs & LPs, not to mention a commitment to partnering with outsiders (including competitors).
#innovation #venturecapital #corporateventurecapital #productinnovation