What is CBD Vertical Integration?
Interest in CBD is exploding right now. With this expansion, CBD Companies are looking to become more transparent. This is where vertical integration comes into play…
In this article, we will break down the fine details of vertical integration and what it means for the CBD industry.
Vertical integration in CBD companies means a connection between all the bucket-essentials of the supply chain. Instead of working on a singular business model, vertical integration allows a CBD company to control every step from genetics, seed, manufacturing, and processing, to finished goods and sales.
CBD Vertical Integration
In simple terms, vertical integration means establishing a correlation between the entities involved in the production stages and supply line. Vertical integration is merely a business strategy wherein one company has to acquire control over each step in the production and supply process.
The company will need to work on close partnerships or ownership with each entity that is involved. Vertical integration in the Cannabinoid industry translates into a simple definition, “from seed to shelf.”
This means that a CBD company integrated fully could possess a cultivation facility, including a lab for extraction that ships completed extracts to the company-owned retail fronts. While vertical integration is a broad term, it molds itself as per the industry type in which it comes into play.
Vertical Integration in the CBD (Cannabinoid) Industry
Vertical integration in the CBD industry is more strategic than a physical concept. When you see a business linking two or more of its supply chain (such as material sourcing, manufacturing or production, distribution, and sale), you know this strategy is in use.
Vertical integration strategy is just as its name implies, vertical in shape. Thus it connects from top to bottom. When CBD businesses structure their supply chain vertically, they can maximize the efficiency of their output and their product performance certainty.
The CBD industry comprises of five buckets:
Genetics
Seeds
Farming and Process
Raw Materials and Formulations
Finished Products and Branding
To gauge how well a CBD business is fully integrated, you must note if they have complete power over each bucket-essential component of their supply chain. A fully integrated company exhibits complete control from seed to shelf, from planting right until the finished product.
If a company aims to provide safe and qualitative products to its customers, it must learn the science behind CBD and the complete process of seed to shelf. If a company remains ignorant of CBD's remediation and properties, it remains in danger of choosing the wrong chain partners.
As a result, the company may end up selling products that could be harmful to use and detrimental to the brand’s image. Lack of education in this regard could cause a business to purchase inferior quality products from polluted farms.
Benefits of Vertical Integration
Vertical integration has several benefits for CBD businesses. For starters, companies can control the quality of their product line, because they can make necessary changes to their production process and supply lines.
This flexibility and control are essential for market evolving conditions, which are usually constant for the CBD industry. It would not be wrong to refer to the CBD industry as a space that faces changing regulations continuously.
Additionally, the cost of production and supply often falls cheaper for companies than hiring third parties. However, you must simultaneously note that vertical integration, despite its many benefits, is not free of challenges.
First, a company needs substantial capital resources to establish a fully integrated business rather than a singular model. Secondly, it also requires greater oversight if it is to maintain the upper hand in the complex operation. Having said, one still cannot deny how the benefits far outweigh the challenges of having a well-structured, fully integrated business.
CBD companies mainly, experience more benefits if they can manage to gather the capital and organization to establish a vertically integrated operation. They would dominate what is generally a very challenging industry.
A fine-tuning opportunity enhances production efficiency and performance, and this is how companies can win the edge over their competitors.
CBD Companies Need Transparency
According to an expert, the CBD production process comprises 17 steps where processors need to be completely transparent with their contractors.
If you are to sell a product under your brand name and reputation, you must maintain the utmost transparency in what you are supplying to your customers. Vertical integration may not be fundamentally crucial for other industries, but CBD businesses take exception in this.
If you merely process, you leave yourself vulnerable to the mercies of biomass and quality manipulation. This does not make a successful business formula. A company that does not control any component of the supply chain will always find that component as its weakest link.
What Vertically Integrated Companies Must Have
The CBD industry, in all honesty, is a trifle volatile. If a company wishes to sustain itself in the industry for an extended period, it must have some crucial pieces in place. These include:
Quality Control
Consistency
Scalability
It is essential to uphold consistency in the quality and supply of genetics. Your company must not aim to be the world’s biggest farmers, but it should strive to have enough to soar through the supply chain without any hiccups.
To achieve this goal, all the vendors must forge transparent and stable bonds in their supply chain. Transparent vendors must gladly welcome their partners with an open-tour facility, where all of their operations are in plain sight.
Of course, every vendor will have his or her processing variations, and that is acceptable. What should not be acceptable is working with those manufacturers, processors, or suppliers who conduct their operations behind closed doors. If you do not know what they are supplying to your brand, it is better not to accept anything from them.
Additional Research Opportunities
One great advantage of vertical integration is that it provides traceable and clear-cut production methods. This makes it easier for researchers to come up with even more innovative ideas for enhancing the growth of CBD.
CBD is relatively still a growing industry, so there is plenty of learning space for everyone. CBD products are only just becoming popular among consumers and manufacturers. Researchers have so many potential opportunities to explore ideas and innovations. From CBD products and their many applications to their growing conditions, vertical integration has given birth to many productive opportunities in this industry.
Consumers Want Trustworthy Brands
We are now living in an era where modern consumer rules and preferences lean heavily towards organic goods. Be it clothing, foods, or cannabinoid products; consumers want transparency and only the most organic products for consumption.
This is why CBD companies must reduce their outsourcing and focus more on optimizing and maximizing their in0house supply chain. Doing so will help them maintain proximity with their operations while allowing consumers a transparent view of every activity behind the scenes.
CBD products are still in the fragile stages, perhaps because research is still underway, and the world is waiting for concrete evidence as to its benefits. Although many claims to have experienced positive changes in their wellbeing since using CBD, most of the masses are still skeptical until science provides proof.
With this aspect in mind, CBD companies cannot risk selling inferior and harmful CBD products under their brand name to consumers. It would have devastating effects on the industry, to say the least, while the company will collapse under allegations of improper production means.
To summarize, CBD companies will grow best if they establish vertical integration. When they control the quality and consistency of their products, they will deliver only the most authentic goods to consumers, hence winning their trust. Therein, lays the success of the company.
Final Thoughts
When companies acquire complete control over the supply chain of their products, they become fully integrated by linking all their internal process together. Vertical integration is less a physical concept and more a strategic one.
The CBD industry operates in a constantly evolving market, owing to the periodically changing regulations. Under such an atmosphere, vertical integration is the key to success for CBD companies, who have to work their way to the top in a fluctuating market.
Take Action
Interested in working with us? Contact us.
Thank you for taking the time to read this article.
To your wellness,
Greenlife Organics