What is A Winning Formula in Cannabis?

 A popular pastime is to debate which industry you should model your cultivation business after.  Common answers are CPG, pharma, alcohol, food and tobacco. 

This is not an academic exercise.  Going-in strategic & operating assumptions on what it takes to win in complex, uncertain sectors like cannabis have huge implications, on your fundraising and operational decisions, and ultimately, and shareholder value.

At this stage of cannabis' development, my vote goes to agriculture. 

While this choice is a no-brainer to some, it is not a commonly held view.  It is odd that agriculture isn’t the default obvious given that most of the cannabis space relies on a farmed product (though becoming less so in an asset-light model).

One North American company embraces its agriculture roots and uses these precepts as their North Star.  Nasdaq-listed Village Farms International Inc. , is one of the most successful and well-run companies in Canadian cannabis. Their Pure Sunfarms and Rose Life Sciences divisions combined place VFI consistently top 3 in market share - and holding - while other large LPs are losing ground.

How does VFI leverage their agriculture pedigree to win in a highly competitive market?

First off, the company does not eschew the lessons of other industries, especially CPG.  They know the importance of brands and adhering to the ethos of a consumer-driven firm.  But they take it to another level: VFI believes that great cannabis brands are patiently built on a foundation of world class agriculture practices.  Exhibit A, their perennially successful Pure Sunfarms brand.

 VFI’s approach may seem obvious but many large cannabis firms pay inadequate attention to getting their cultivation business humming.  This is not surprising given that consistently growing quality product at scale is tough and capital-intensive. Furthermore , it's often easier to source better, cheaper flower on the wholesale market.  Finally, there is the food or tobacco industry mindset which casually and prematurely thinks that good inputs could be sourced from anywhere, at any time.

VFI’s reliance on best practice agriculture is second nature.  Their business roots are the ultra-competitive world of high-quality tomatoes. Like cannabis, the tomato business is a challenged on the cost, brand and pricing side with the added issue of facing strong, low-cost foreign competitors.

Having an agriculture-oriented mindset has key implications.  You-

1.      Know that being a strong cultivator is key for product and supply consistency – and successfully building brands;

2.      Are very disciplined with capital and obsessed with cash flow and return on assets;

3.      Prioritize profitable segments where you can capture large shares;

4.      Understand that controlling your inputs and value chain offers strategic flexibility and more ability to drive down costs. 

#villagefarms #puresunfarms #roselifesciences #agriculture #strategy