MSPs say their cannabis industry customers are (surprise!) the nicest and most easygoing. Good thing, because the vertical itself is among the more challenging.
To date, 33 states and the District of Columbia have passed laws legalizing cannabis in some form—for medical use, CBD products, or recreation for adults over 21—and have new “cannabusiness” operators in need of help with physical security, backup, disaster recovery, and more. But to tap into this lucrative market, MSPs will need to cultivate deep industry knowledge and manage some unique challenges.
“In order to be respected and to be competitive, you need to understand the industry very, very well,” says Luis Alvarez, president and CEO of Salinas, Calif.-based IT services provider Alvarez Technology Group, which launched its Veo Verde Technology division to capitalize on the cannabis boom. “You can’t treat them like the law office or CPA firm or manufacturing company. They’re different, and they know they’re different. And they don’t want to have to explain it.”
Doing that homework is worth your while, however. Data analytics company Nielsen reported $8 billion in legal cannabis sales in the U.S. in 2018, projecting more than $40 billion by 2025. This year, BDS Analytics reported $648 million combined sales in June alone in Arizona, California, Colorado, Nevada, Oregon, and Washington, about 70% of legalized U.S. sales.
Although increasing competition, rising business costs, and lower product prices are forcing some small cannabusinesses to close, the industry’s overall growth is bringing profitable business to some channel pros.
Work the Supply Chain
Cannabis products are diverse. Companies in the industry “can be a butcher, a baker, or a candlestick maker—literally,” says Harry Brelsford, CEO of event and publishing company SMB Nation, and an investor in businesses servicing the cannabis industry.
MSPs say the best opportunities are with cannabis growers and processors that need extensive video surveillance and data storage in order to comply with state laws, as well as access control, wireless device and IoT monitoring, PCs, and cloud-based services. The industry is also developing a network of ancillary businesses such as packaging and accessory vendors channel pros can serve.
Strict rules about surveillance, security, backup, and disaster recovery are written into all state marijuana laws, creating the biggest IT demand.
“The ax that hangs above these companies is the threat of losing their permits,” says Alvarez, due to a lack of compliance with laws requiring 24/7 video surveillance and fast reports of any downtime. Additionally, operators are required to store and back up video data for 45 to 180 days depending on where they are. “You’d go broke with that much video on Amazon Web Services,” says Brelsford.
Alvarez says the legal specifications are also highly detailed, such as aspect ratio and frames per second. He believes MSPs have an advantage over traditional alarm companies, which tend to be less familiar with IP-based systems that have faster data transfer, analytics options, and higher resolutions to meet legal requirements.
In addition to surveillance, warehouses and grow operations must track large numbers of plants and products and provide detailed reports to authorities. These legally imposed tracking requirements create a need for wireless environments that support IoT devices, which may require long-haul fiber, says Alvarez.
A Unique Industry
Every industry has its oddities, but some cannabusiness idiosyncrasies will be new to channel pros.
While it has similar compliance issues to other government-regulated verticals such as healthcare and banking, cannabis laws at federal, state, and municipal levels are often different and conflicting. What’s more, the legal ramifications of IT failures, such as downtime fines, mean MSPs should take extra caution to ensure service contracts don’t leave them liable, says Alvarez.
And no matter the size of the operation, the young industry still has a predominantly mom-and-pop feel. Owners are likely to be less business and IT savvy, Alvarez says, adding that companies prefer cannabusiness specialists over other IT providers who don’t understand the industry’s particularities.
Cannabusiness also presents unique marketing challenges. It comes with more legal, ethical, and moral weight than most other opportunities. As a result, it’s not uncommon for MSPs to launch a separate brand or company to service cannabis customers. Highview did just that and preferred its source for this story not be named in order to maintain distance from its parent company.
Alvarez launched Veo Verde out of a similar concern for tarnishing the parent company’s brand. What’s more, the new brand signaled to cannabis companies that Veo Verde was focused on their industry and understood their pain points. To reach this market, he leaned heavily on Facebook and Instagram.
Getting Close to Cannabusiness
Channel pros who have netted significant business in cannabis say your first big investment should be attending local association meetings and conferences such as MJBizCon and the National Cannabis Industry Association (NCIA) event to make connections. Alvarez says there was also a lot of cannabusiness discussion at CompTIA’s recent ChannelCon event.
In addition, Alvarez attends relevant public meetings to give Veo Verde visibility, which generates referrals from county officials dealing with cannabis companies.
Vendor support is readily available to help too, according to Alvarez. “From MRP systems, SaaS, and POS, all the way down to people selling surveillance cameras and storage systems, you’ll have a lot of support if you do it the right way and really focus,” he says.
The process takes time, but MSPs say it’s likely to pay off. With the growing trend toward marijuana legalization, Alvarez expects Veo Verde to match or outgrow its parent company in the next five years.
(A longer version of this piece appeared in ChannelPro Magazine.)