When one thinks of the cannabis industry, they will typically conjure images of mountains of herbal cannabis, some sort of process that combines cannabis with something else we ingest, or anything to do with cannabis material and the resultant product. However, there is another side to the industry that makes no use of the cannabis plant in the creation of their products. While the meat of the industry will remain with the material produced by the plant, there is also a significant chunk for companies that facilitate the smooth running and growth of the industry. Beyond physical products, the cannabis industry has seen a great deal of service providers enter the industry with a focus on financial amenities and payment processing since the traditional banking industry is either reluctant or not allowed to take on cannabis customers.

Seed to Sale

In every legal jurisdiction, maintaining safety and regulatory standards is of the utmost importance to businesses. Without it, they can be shut down by the authorities. Legal cannabis is required to be tracked through its lifetime, up until the point a customer buys it. This means that from seed to sale, certain regulations and standards need to be met. Aside from safety, it provides the customer an honest choice of strains that have been tracked from the seed, which they may not have been able to trust without a tracking system to verify that the named strain on the label, is what is inside the packaging. Constantly labelling and barcoding every step of growth provides a business with a clear inventory that constantly and accurately records how much stock there is, and the stages their produce went through during growing. This also ties in with law enforcement, that in many American states having expressed concern about legal cannabis finding its way into the black market, which retailers can now disprove by having all of their inventory logged. Ancillaries provide the infrastructure needed for an industry that has formed so fast.

Biotrack THC

Biotrack THC are one of these seed-to-sale products being offered by Helix Technologies, a cannabis industry ancillary provider. They have risen to become one of the largest seed-to-sale platforms in the world, serving over 2,000 customers in 6 countries and have processed over $18 billion in cannabis sales. As more American states continue to legalise, the need for these companies is only growing. Biotrack THC alone processed 750,000 units on their platform in the first week in Illinois, which came to $11m in sales and their shares rose 10.9% as a result. By starting early and establishing themselves with the first legal jurisdictions, Biotrack have cemented themselves in the industry, but are likely to face heavy competition in the future as more and more entrepreneurs find themselves drawn to a growing industry.

Intangible Service Providers

While physically tangible accessories are a constant, value is also being created in business to business models that aim to deal with the problems of the industry, namely that the financial industry is reluctant to work with cannabis companies, and that the lack of infrastructure surrounding the industry has made running a business difficult for many owners. The largest payment processors are unwilling to work with cannabis-related businesses and the ones that do, charge a higher percentage of the transaction fee with no guarantee that the bank will allow the transactions to take place, even if for a product that is not illegal. As a result, entrepreneurs and investors have seen an opportunity in the ancillaries market.

Payment Processing for Cannabis

Casa Verde Capital is a venture capital firm that invest exclusively in ancillaries that do not touch the actual cannabis plant at any point of their operations. Headed by Karan Wadhera, Casa Verde invested in GreenBits, who provide payment terminals designed to comply with the complex set of regulations governing the sale of cannabis. It differentiates itself by focusing exclusively on the cannabis industry, with the system taking into account differences in American state law, customer identification, inventory control and support for cash transactions. GreenBits now process over $2bn a year in transactions from businesses that use their services, and have raised $20m in venture capital funds. While much of their success can be attributed to the sheer quality of their service, some has to be placed on moving into this space as early as 2015, and establishing themselves in an area that had no reputable, well-known names.

B2B Online Market for Buyers and Sellers

With increasing growers and productivity, there will be more and more cannabis on the market for dispensaries to sell and the lack of access to the exact stock they wish to sell, can hamper their business. Another ancillary business aims to deal with this by providing a wholesale market for growers and dispensaries. LinkLeaf was founded in 2015 to connect growers and retailers, and has grown to provide a CRM system, order management, inventory tracking etc. LinkLeaf has grown to facilitate over $1bn in orders, secured $55m in funding since starting up and connects over 1,200 cannabis brands to 3,500 retailers. These businesses provide an image of the basics that have been missing from the cannabis market, that so many take for granted in established industries. Recognising that the cannabis industry is without many of the basic service providers present elsewhere, these two firms established themselves early and gained the first mover advantage. There will be a demand for sophisticated and professional ancillaries service providers while infrastructure around the industry remains weak.

An Industry Within an Industry

The cannabis industry has a lot more to offer than the cannabis itself, there exists an entire world and culture around the drug that is ready to be monetised by forward-thinking businesses that know what cannabis consumers like and want. The importance of this accessory market cannot be understated, as it provides an important supplemental income to retailers around a time when regulation around the sale of cannabis is ever changing, restrictive and damaging to the bottom line. Canadian company High Tide are of the biggest names in cannabis accessories with their various subsidiaries and takeovers, recognising that the accessory market is as important as the cannabis market itself. These businesses, once legal restrictions have been loosened, can move into the cannabis plant material side of the industry without years of tentative growth and setbacks from regulators. A brand and business can be built with accessories and ancillaries that can transition to a cannabis business without major problems. Like so much in the industry, it greatly depends on the actions of lawmakers and regulators. Entrepreneurs need not to wait for regulation and legislation to become clear, they can start now in the ancillaries/accessories business and build their brand from the beginning.

Visit the Cannabis Fund blog for more regular updates and forays into the world of cannabis, hemp and investing.